Oral Answers to Questions

WALES

The Secretary of State was asked—

Objective 1 Payments

Nicholas Winterton: What recent discussions he has had with Her Majesty's Treasury on matching the funds of objective 1 payments.

Peter Hain: I have had regular discussions with the Chancellor and the Chief Secretary on the spending review, including objective 1. In both the 2000 and 2002 spending reviews, extra money was made available to Wales, outside the Barnett formula, to provide public spending cover for the structural funds programmes in Wales.

Nicholas Winterton: As always, I am warmly grateful to the Secretary of State and Leader of the House for his reply. But can he say whether west Wales and the valleys will receive less European Union structural funding after 2006? Will the United Kingdom Government make up the full difference, or is an EUtransitional arrangement expected, with the Government making up the differences?

Peter Hain: I am always warmly grateful for the hon. Gentleman's questions, whatever they may be about and whether or not they are about Wales.
	We are still in the process of negotiating the post-2006 position, which is not clear. However, we are determined to secure a very good deal for Wales, and I am confident that that will happen as a result of the negotiations in Brussels by, among others, the Chancellor.
	This has been a fantastic boon for west Wales and the valleys. Economic inactivity levels are down by 25,000 and employment is up by 28,000 in the objective 1 area. Business is growing, growth is improving and public expenditure is going in. The funding has been very good news for Wales: it is a once-in-a-generation boost, of which we are taking advantage.

Betty Williams: I am given to understand that the European programmes in Wales have been allocated over £65 million of additional funds as a result of the European Commission's performance reserve. How much of that will be allocated to objective 1 programmes, and does my right hon. Friend have details readily available as to how much will be allocated to north Wales?

Peter Hain: I know that objective 1 funding has been very important in my hon. Friend's part of north-west Wales, and that she has been an energetic advocate of the case. I applaud that. I cannot provide the figures for which she asks, but I shall be happy to write to her.
	What is clear is that the money going to my hon. Friend's constituency and to north-west Wales as a whole has been an enormous boost in an area that—at least during the Conservative years—has traditionally had a very rough time economically. That is a tribute to Labour's negotiating skills, and to our achievements.

National Assembly for Wales

Anne McIntosh: What recent discussions he has had with the First Minister of the National Assembly for Wales on the devolution of further powers to the Assembly.

Gareth Thomas: If he will make a statement on the Richard commission inquiry into the powers and working of the National Assembly for Wales.

Peter Hain: The First Minister and I have had regular bilaterals on these matters.

Anne McIntosh: Is the Secretary of State clear about whether the First Minister thinks there should be a transfer of primary law-making powers or an adjustment to the existing devolution settlement, allowing the Assembly to amend laws passed here? Which is it? The First Minister does not seem to be clear about it in his own mind.

Peter Hain: The First Minister has floated a different option, which is being explored. I am discussing it with him, and once it is clear exactly how it will translate into legislative terms—if that is required—there will be an answer to the hon. Lady's question.
	It would be interesting to learn from the hon. Lady, or indeed from the shadow Secretary of State, what Conservative policy is on this. We have been clear about our desire to see progress, but it is not clear where the Conservatives stand.

Gareth Thomas: May I invite the Secretary of State to be rather more definitive than he has been in the past about which of the Richard commission's recommendations would require a referendum before implementation?

Peter Hain: If tax-varying powers were to be adopted on the Scottish model, a referendum would certainly be required. There is no argument about that, and I think Richard conceded it, because the Scots had a referendum. As for whether primary legislative powers relating to functions already devolved would require a referendum, I know that my hon. Friend has advocated that, and that it has been advocated by a majority of Welsh Labour Members and a number of Welsh Labour constituencies. We are currently consulting on it.

Lembit �pik: May I ask the Secretary of State to explain Rhodri Morgan's compromise option?

Peter Hain: The First Minister is arguing that one could adopt the 13.2 option that the Richard commission advocatedessentially, it involves enhanced secondary legislative powers for the Assemblyin a different configuration. Under the proposal, it is not just prospective or current legislation that would be dealt with; the Assembly would also have powers over retrospective legislation. We are looking at that idea and discussing it in detail.

Alan Howarth: Will my right hon. Friend explore further ways of improving scrutiny of clauses in primary legislation that confer additional powers on the Assembly, thereby building on the new procedure for scrutiny by combined Committees of the Assembly and of this House, as is currently happening with the draft transport Bill for Wales? Will he consider whether Ministers in the Welsh Assembly Government should be invited to have their proposals for primary legislation examined by Standing Committees of this House, and perhaps through other proceedings in this Chamber?

Peter Hain: I shall certainly consider that interesting idea. Of course, pre-legislative scrutiny is an important achievement of this Government that the whole House has welcomed. All recent Welsh Bills, including the current Public Audit (Wales) Bill, were subject to pre-legislative scrutiny and were improved as a result. Perhaps I might take this opportunity to remind everybodyespecially the nationalists and the Liberal Democrats, who want to rush ahead with this agendahow much legislation has gone through in the past year under the existing settlement: nine Bills, containing 163 Welsh clauses. That is a very important achievement that this Labour Government have delivered for the people of Wales under the current devolution settlement.

Adam Price: The Government's proposed regional assemblies will be granted borrowing powers. The Northern Ireland Executive already have such powers and have raised more than 200 million in the past two years. Does the Secretary of State agree that granting such powers to the National Assembly would be of great benefit to Wales, and that it would be one of the few positive changes that would not split the Welsh Labour party?

Peter Hain: The Assembly has a huge budget, which is devolved from Westminster. I should remind the hon. Gentleman, whose party advocates independence for Wales, that if that policy were adopted, Wales would be permanently borrowing from just about every bank in the world, because it would be bankrupt as a result of the Mickey Mouse economics that underpin that policy. In fact, since the nationalists have come out totally, transparently and honestly in favour of independence, their vote has actually fallen by 12 per cent.

Dee Estuary

Ben Chapman: What discussions he has had with the First Secretary regarding the necessity of dredging the Dee estuary.

Don Touhig: My right hon. Friend and I have regular discussions with Assembly Ministers about issues relating to the application to carry out dredging in the Dee estuary.

Ben Chapman: While nobody appreciates more than I do the importance of jobs at Airbusmany of my constituents work therethe Dee estuary is one of the most important and highly protected nature conservation sites in the United Kingdom. Can my hon. Friend assure me that when decisions are taken about dredging, the Government will balance the views of the English and Welsh sides of the estuary, take account of the balance of interests of ecology and of commerce, examine alternatives and check the extent to which dredging is actually necessary for the purpose claimed?

Don Touhig: All alternatives must be fully and properly assessed before any decision can be taken, and the process must robustly meet the current relevant legislative requirements. I have no doubt that that will happen.

Martyn Jones: Is my hon. Friend aware that most of this precious habitat appeared only in the last 50 years and that it would be utterly insane to jeopardise 6,000 top-quality jobs within Wales for the sake of some marsh land that has appeared only recently?

Don Touhig: All those factors will be taken into account as the assessment is made, but I appreciate my hon. Friend's point. British Aerospace employs 6,000 people and it is a crucial player in the economy of north-east Walesand, indeed, of Wales as a whole. The A380 superjumbo Airbus project will further raise the area's profile and will protect, secure and increase job opportunities in that part of Wales. All those matters must be taken into account before a decision is taken.

Health Spending

Andrew Turner: When he last discussed with his Cabinet and Welsh Assembly colleagues the per capita level of health spending in Wales.

Peter Hain: I regularly meet the Assembly First Minister and the health service in Wales is one of the topics that we frequently discuss.

Andrew Turner: As the Secretary of State will know, expenditure per head in Wales is 9 per cent. above that in England, yet there are worse health outcomes in Newport, Monmouthshire than in Newport, Isle of Wight. Is that because the number of administrators has increased by 15 per cent. since 1996?

Peter Hain: I do not accept the hon. Gentleman's comparison. In fact, under the Welsh Assembly Government, many more nurses have been recruited. Indeed, there are 4,061 more qualified nurses and 305 more qualified equivalent consultants under Labour, after years of cuts that involved hospital closures, the sacking of nurses and doctors and a decrease in hospital beds under the Conservatives. Wales is moving forward under Labour with increased health investment and more treatment for the patients of Wales.

Chris Bryant: Is not health spending per head one of the silliest ways of measuring health spending? Should not health spending match health need? In the words of Matthew, one of the children in the House today from Llwyncelyn primary school, Can we have more money for the hospital in Llwynypia?

Peter Hain: I am sure that the Minister with responsibility for health in Wales will look seriously at Matthew's bid, transmitted through my hon. Friend, but the truth is that, whether in his constituency or across Wales, there has been a massive increasea near doublingof the Welsh health budget under Labour after years of Conservative cuts. If the Conservatives won the next general election, the result of their patients passport policy would be an immediate cut of 60 million in the Welsh health budget. That would mean either 2,400 nurses or 660 consultants losing their jobs. What a dreadful policy to inflict on the people of Wales.

Bill Wiggin: Despite the extra health spending, does the Secretary of State agree with the First Minister that choice in the NHS is not relevant in Wales?

Peter Hain: The real choice for the people of Wales is between Tory cuts, privatisation and charges and Labour investment, resulting in more nurses and doctors, more facilities and more patients being seen. About 250,000 more patients are being seen in Wales under the Labour Government. That is a fantastic record compared with a miserable Tory record.

Bill Wiggin: Perhaps the Secretary of State can explain why the number of finished consultancy episodes has decreased by 1 per cent. since 1999.

Peter Hain: It is time that the hon. Gentleman asked some sensible questions at Welsh questionsquestions with some relevance to the people of Wales. The fact is that, under the Labour Government, we have seen nursing and midwifery places increase by 25 per cent. compared with the Tory policy of cutting them by 25 per cent. We have seen a doubling of investment in the NHS in Wales and, as I have said, waiting times for key procedures coming down. Ten new hospitals have been pledged and some are already open. That is a really good record. Of course there is room for improvement and the policy will be driven forward.

Bill Wiggin: If the record is so good, why have waiting lists increased by 82 per cent. since 1999?

Peter Hain: The truth is that 250,000 more patients have been seen in Wales under Labour than was the case under the Tories. If we set that against the background of a population of 3 million, that is an extraordinary achievement. It has been built on the back of record investment, and the recruitment of more nurses and doctors compared with the Tory programme of cuts, privatisation and charges. That is what the people of Wales would get if the Tories won the next election.

Llew Smith: As my right hon. Friend will know, in Blaenau Gwent we have some of the worst health problems in Wales, including heart and respiratory diseases, lung cancer and mental health problems. At the same time, we have difficulty in attracting the appropriate number of doctors to the community. Will he say what is being done to rectify that wrong?

Peter Hain: Under this Labour Government, health services in Blaenau Gwent and elsewhere in Wales have improved. My hon. Friend has been a consistent champion for his constituency, which is one of the poorest parts of Wales, and we obviously need even more improvement. That will be achieved in future years, and I hope that he will continue to support it.

Dentistry

Andrew Robathan: What recent discussions he has had with National Assembly for Wales Ministers on funding for dentistry in Wales.

Elfyn Llwyd: What discussions he has had with the First Minister of the National Assembly for Wales on ways of increasing the number of students studying dentistry; and if he will make a statement.

Don Touhig: I discussed dentistry in Wales with the Assembly Health Minister on 16 June, at one of our regular bilateral meetings.

Andrew Robathan: Does the Minister remember that the Prime Minister said, in September 1999, that in two years everyone in the UK would be able to have access to an NHS dentist? However, only just over 50 per cent. of the Welsh population are registered with an NHS dentist. How does the Minister square those two facts? When will the people of Wales be able to get an NHS dentist?

Don Touhig: The Welsh dental initiative, a funding scheme to increase access to NHS dentistry, has provided more than 23,000 extra places in the NHS in Wales in the past 12 months. We need no lessons from the Conservatives about the NHS in Wales. When they were in power, they closed 70 hospitals, slashed nursing and midwifery training and cut a third of general acute beds. Eighteen years of under-investmentthat is what we are putting right.

Elfyn Llwyd: To be fair, the reality is that the crisis in NHS dentistry in Wales has been going on for about 10 or 12 years. However, this Government have been in power for nearly seven years. Will the Minister consider two very important initiatives? First, it is very important to incentivise students to study dentistry. Secondly, rural practices in particular should be assisted to take on trainees so that they can stay on in due course. Those two important measures could easily be put in place. I urge the Minister to discuss them with the First Minister.

Don Touhig: I am aware of those initiatives, which the hon. Gentleman has raised a number of times in the past. Indeed, the all-Wales work force development steering group has given support in principle to expanding the numbers of undergraduate dental students in Wales. A business case for that expansion has been passed to the Assembly and is under consideration. I am also aware that the hon. Gentleman met my right hon. Friend the Secretary of State, who has taken up the matter with the First Minister. I hope that we will be able to take the agenda forward.

Huw Edwards: Will my hon. Friend the Minister acknowledge that the Assembly's Health Minister has put 5.3 million into dentistry in Wales? Indeed, a new practice was opened in Brecon road in Abergavenny last November by Dr. Mohamed Gazi. Will my hon. Friend join me in congratulating him, and wishing him every success in providing, under the NHS, the sort of service that local people deserve?

Don Touhig: Indeed, eight new dental practices offering NHS treatment have been opened in Wales. In north Wales, they are at Barmouth, Wrexham and Llanrwst; in mid-Wales, they are at Machynlleth and Crickhowell; and in west Wales, they are at Carmarthen and Abergavennythe area to which my hon. Friend referredand Merthyr Tydfil.

Denzil Davies: Is my hon. Friend aware that AXA Insurance and Denplan are the main private providers of dentistry in Britain, with about 30 per cent. of the dentistry market? In Llanelli, the market share is close to 100 per cent. If the trend continues and is not arrested, does he agree that there will be very little left of NHS dentistry, in Wales or Britain as a whole?

Don Touhig: I take my right hon. Friend's point very seriously, and I am aware that we have discussed it in the past. However, the Welsh dental initiative provides grants of up to 50,000 to practices in designated areas and is aimed at increasing NHS dentistry provision in Wales. Grants of up to 20,000 are available to establish new vocational training practices. Working in partnership with colleagues in the Assembly, we are seeking to push the agenda forward but, as I said in reply to the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd), we have a long road to travel to make up for the under-investment of 18 years of Tory Government.

BBC Wales

Kevin Brennan: What discussions he has had with ministerial colleagues on the future of BBC Wales in relation to renewal of the BBC charter.

Peter Hain: The charter review is still at an early stage. While I cannot prejudge its outcome, I think that the importance of the national and regional dimensions of the BBC's work is well recognised.

Kevin Brennan: I know that my right hon. Friend recognises the important contribution of the BBC to the civic and economic welfare of Wales. Was he as concerned as I was when the BBC recently cut the post of nations and regions from its executive committee? Will he ensure in his discussions with colleagues that the role of the nations[Interruption.]

Mr. Speaker: Order. The right hon. Member for Manchester, Gorton (Sir Gerald Kaufman) should not walk in front of an hon. Member who is speaking.

Kevin Brennan: Thank you, Mr. Speaker. Will my right hon. Friend ensure that the role of the nations and regions is robustly included in charter renewal discussions by him and his colleagues?

Peter Hain: Like my hon. Friend, I am a little troubled by the fact that although each of the nations is represented by a national governor on the BBC's board of directors, the nations are no longer directly represented on the executive board. I understand that management restructuring may be part of the explanation, but I have raised the matter with the director-general. I agree that BBC Wales has a fantastic record of achievement and excellence and that is one of the reasons why Wales is driving forward the digital television agenda, with my support, and why it is fast establishing a reputation as a centre for creative industries in the multi-media field. I know that that will continue under the present director-general, and I hope that he will be as generous to Wales as the previous one was.

Roger Williams: BBC Wales is highly regarded for its public service broadcasting, but S4C is also highly regarded in Wales. What actions has the Secretary of State taken to ensure that it receives adequate funding to continue its excellent programme making?

Peter Hain: S4C has had a very good record and is currently in the middle of a reviewat its requestof its future in the digital age. I am working closely with the company to ensure that it gets a good deal. I also want to ensure that S4C's Welsh language broadcasting continues to move forward, alongside BBC Wales, which provides much of the programming that S4C puts out. All of it is of a very high standard.

Performance Data

Jon Owen Jones: What discussions he has had with National Assembly for Wales Ministers about the implications for local authorities in Wales of the Freedom of Information Act 2000, concerning the publication of performance data.

Don Touhig: My right hon. Friend and I have regular discussions with Assembly Ministers on a range of matters. Local authorities in Wales are subject to the requirements of the Freedom of Information Act 2000. However, they are already required to publish information annually on their performance in accordance with an order made by the National Assembly for Wales under the Local Government Act 1999.

Jon Owen Jones: But the data that are published are far less full than the performance data that are published in Scotland and in England. Does my hon. Friend agree that a healthy democracy is a well-informed one? Is it not regrettable that the Freedom of Information Act 2000 is needed to extract information so that the public can judge how their local authorities perform?

Don Touhig: My hon. Friend raised that matter directly with the First Minister recently at a meeting that I also attended. It is of course for the Assembly to determine the indicators to be measured by Welsh local authorities, and those indicators take account of the Assembly's priorities for improving the performance of local government in Wales. It is for the Audit Commission to decide how their reports should reflect local authority performance in Wales. I understand that it has done that in consultation with the Assembly and local government.

Entrepreneurs

Julie Morgan: What steps he is taking to help entrepreneurs in Wales.

Don Touhig: Besides creating a stable macro-economic environment to enable entrepreneurs to start up and prosper, the Government and the Assembly, working in partnership, have introduced a wide range of measures to support businesses in Wales, from grants to a free business advisory service.

Julie Morgan: Is my hon. Friend aware of the success of V and A Marketing, based in Llandaff North in my constituency, in producing an award-winning line of feeding equipment for children in conjunction with Dr. Miriam Stoppard? Is he aware that that company is likely to double its work force and will he join me in congratulating the managing director, Mr. Vic Davies, on his achievements?

Don Touhig: I have been aware of that for the last 10 seconds, but I congratulate the company and wish it well. The entrepreneurship action plan, which is the Assembly's strategy, has contributed to 6,700 business starts in 200304, which is an almost 60 per cent. increase over 200102. In the 2004 Budget, my right hon. Friend the Chancellor of the Exchequer announced incentives to benefit small and medium-sized enterprises, including improvements to research and development tax credits. All that will benefit entrepreneurs and business in Wales and shows that this Government are on the right track to make Wales into a world-class economy.

PRIME MINISTER

The Prime Minister was asked

Engagements

Andrew Love: If he will list his official engagements for Wednesday 7 July.

Tony Blair: Before I list my engagements, I would like to express our condolences on behalf of the Government and the House following the death of the Austrian President, Thomas Klestil. He will be sadly missed, and our thoughts are with his family at this time.
	This morning, I had meetings with ministerial colleagues and others. In addition to my duties in the House, I will have further such meetings later today.

Andrew Love: Will my right hon. Friend join me in welcoming the proposal for a city academy in my local area? Will he support that application in the Department for Education and Skills? When he publishes his education plans shortly, as well as expanding the academy programme, will he guarantee that there will be no tax concessions for those who wish to take their children out of the state system?

Tony Blair: First, I am delighted about the proposal for a city academy in my hon. Friend's constituency. I know that he is working, as we are, with the local authority to ensure that that happens and that it will be a great advance for education in his area. I can assure him that we will carry on with the record investment in education in this country. I want to make it clear on behalf of the Government that there will be no return to the 11-plus and selection. There will be no subsidy to private schools. Instead, there will be an education system providing excellence not for a privileged few, but for all.

Michael Howard: There are 21,000 state schools in Britain. Two years ago the Government launched a flagship policy, which they called the power to innovate, to give schools freedoms over the way that they manage themselves. How many schools have been granted freedom under that initiative?

Tony Blair: I do not know the precise number that have been granted freedom, but what I do know is that, under this Government, all schools have got greater freedom and independence than they had before; that is absolutely right. But let me make it clear to the right hon. and learned Gentleman that, alongside the extra investment that we are putting in, what we will not grant is the freedom that he wants, which is the freedom to give a subsidy to those who send their children to private schools.

Michael Howard: I thought that the Prime Minister was in favour of a choice of providers. That is what he said just a short time ago, and that is what we would give parents, but he did not answer the question that I put to him, which was about a specific policythe power to innovate. The answer is that, out of 21,000 schools, just four have been granted those freedoms.
	Now, let us look at another of the Prime Minister's initiatives. The Government have boasted that they have provided the opportunity for the most successful schools to expand. How many schools are expanding under that initiative?

Tony Blair: Actually, many schools in the country are expanding their numbers, because we have given them a power to expand. However, it is absolutely right that, at the same time, we will not allow a situation to develop where schools are cut adrift and where failing schools are not given the help that they need to succeed.
	If I may just go back to the point that the right hon. and learned Gentleman made about choice in education[Interruption.] Oh yeschoice in education depends on raising standards in schools, does it not? Let me just remind him that, when we came to power, there were 450 failing schools in this country. Today, the number is less than half of that. The results at primary schools are up. The results at GCSE are up. The results at A-level are up. All because of an investment in a reform programme that he opposed.

Michael Howard: And one in three children who leave primary school in our country still cannot read, write and count properly.
	Now, the Prime Minister has not answered the question that I just put to him. It was a very specific question on one of his specific policies. He really must do better and try to answer the questions. He is not setting a very good example to the children in our schools. The answer is that, under that initiative, just four schools are benefiting.
	Now, let us look at another of his initiatives. Two years ago, he launched another flagship policy, which he called earned autonomy, and which the Secretary of State for Education and Skills promised to promote energetically. How many schools have benefited from that initiative?

Tony Blair: All 2,000 of the specialist schools in the country are indeed getting more autonomy, as are foundation and voluntary-aided schools. Since we are debating statistics and who is in need of remedial treatment, the right hon. and learned Gentleman said that a third of children left school at 11 without the requisite standards in literacy and numeracy, but I think that he could go on a literacy and numeracy course, because actually 75 per cent. of children are now up to the standard in English with 73 per cent. in maths. What were the figures when he left office? The cheek of the Conservatives is that they are going round the country saying, Isn't it a scandal that we still have 11-year-olds leaving school without the best results they could get? Yes, it is, but it is a scandal that we are putting rightmeasures he opposed. Of all the extra investment going into our education system, he opposed every single penny piece.
	Yes, thankfully, results are going up under this Government, but that contrasts with another recordlet me read it to the House. [Hon. Members: No.] Yes. In 1997, teacher numbers had fallen by 36,000, funding per pupil had been cut, barely half of all 11-year-olds were up to the standard in reading, writing and maths and fewer than half of all children got the right GCSEs. That is the difference between a Tory record and Labour achievement.

Michael Howard: The Prime Minister has just admitted that the state of our education is a scandal, but he has been in office for seven years. He has not answered a single one of the questions that I have put to him today. The answer to the last question that I asked about his earned autonomy initiative was that not a single school has been granted earned autonomynot one! Not a single school has been allowed the freedom that the Prime Minister promised the country at the last election. When parents hear him talking today about school freedom, expanding popular schools and giving parents more choice, all of which we have long called for and supported, will they not recognise that we must judge the Prime Minister not by what he says, but by what he does, and that what he does is never what he says?

Tony Blair: First, let me repeat that all the specialist schools have greater autonomy and freedom, which I pointed out to the right hon. and learned Gentleman a short time ago. Since we are talking about scandals in the education system, yes, I think that every single child who is deprived of a decent education in this country represents a loss and social injustice to that child and the country. Let us look at what we have achieved. In seven years, the number of failing schools has halved and the number of state schools getting over 70 per cent. good GCSEs has doubled. The city academies are a great innovation in our system, as are the specialist schools. We have put up the results in primary schools, at GCSE and for A-levels.
	All that has happened, but it is true that we need to do far more. The way to do that is to carry on putting money into, and changing, our public services. The truth is that the right hon. and learned Gentleman wants to give people a subsidy to go out of the public services. Let me make the situation clear, since we are again having the debate that I hope we will carry on having from now until election day. The difference is between extra investment in the public services by this side, and cuts in public investment by that side. The difference is excellence for all, not a return to selection. It is no tolerance of failure, as opposed to his policies, which would cut our children adrift. Let us carry on having this debate.

Tom Levitt: My right hon. Friend might be aware of reports in today's press showing that the constituency with the fastest growing rise in affluence in the country is the High Peak of Derbyshire. That clearly has a lot to do with Labour's management of the economy and also high-quality local representation. Does he agree that the people who have gained most from an increased quality and standard of living are the pensioners who are receiving pension credit and the 9,000 families in High Peak who are now benefiting from child tax credit?

Tony Blair: It is important that we are giving special help to those who need it most through the working families tax credit, through the pensioner credits and through the other things that we have done for pensioners over the past few years, which amount to many billions of pounds a year.
	The other point that my hon. Friend makes is also right. Over the past seven years, we have seen 2 million extra jobs, dramatic falls in unemployment and the longest period of stability that the country has enjoyed in economic policy for many years. Contrast that with just 10 or 15 years ago, when constituencies such as that of my hon. Friend were often facing interest rates of 10 per cent. or even 15 per cent. We had 3 million people unemployed when the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) was sitting in the Cabinet, and an economy that went from boom to bust. [Hon. Members: Hooray!] I am delighted to return to that theme. That is precisely why we will continue with the policies of economic stability, low unemployment and investment in our services.

Charles Kennedy: What guarantees can the Prime Minister give us that his education plans will not result in a two-tier state system, with chosen schools getting the lion's share of the money and the rest being left behind?

Tony Blair: I can give the right hon. Gentleman the guarantee that we will ensure that there is not a return to selection, which will end with schools choosing parents rather than parents choosing schools. That is why we reject the policy of the Conservative party. We will also ensure that we carry on giving investment to all our schools. The vast bulk of the investment that we have put into our education system has gone on a fair basis to all the schools in the country, and most of it has gone, to, for example, excellence in cities programmes, to some of the most disadvantaged schools in our community.
	I do not accept that we do not have a two-tier system now. Unfortunately, we have a many-tiered system. We must improve the quality of all our schools.

Charles Kennedy: Following on from that, is the Prime Minister guaranteeing that he will run a common admissions system for all state-funded schools? If he does not, he will get into exactly the difficulty to which he has just been referring. Surely he will acknowledge that people want high-quality local state schools. They do not want a Labour Government trying to outbid the Tories when it comes to selection.

Tony Blair: We already have specialist schools. In the secondary education system, more than half of the schools are specialist schools. I do not know whether Liberal Democrats are still opposed to specialist schools. Are they?

Phil Willis: We have never been opposed.

Tony Blair: Never been opposed. I think that we will check that one out.
	The rules on selection are exactly the same as those for specialist schools, and they have not led to anything like that which the right hon. Member for Ross, Skye and Inverness, West (Mr. Kennedy) is talking about. We are making sure that where schools are failing, we intervene and we help them. That is why we introduced specialist schools and excellence in cities. The city academies that the right hon. Gentleman now appears to be opposing[Interruption.] Am I right in that? So the right hon. Gentleman is not opposed to specialist schools, he is not opposed to city academies and he does not want to return to selection. I think that he should cross the Floor.

Hilton Dawson: This Government are leading the world[Interruption.] It happens to be true. They are leading the world in their response to the desperate humanitarian situation in Darfur in the west of Sudan. Having, along with other members of the all-party group on Sudan, witnessed the shocking plight of hundreds of thousands of people who are facing disease and death over the next few months as the rains come, I ask my right hon. Friend whether the Government will do even more, whether they will encourage other European Governments to do much more, and whether they will join in a united appeal throughout the nation to top up the support that individual people from across the United Kingdom can contribute to relieve the suffering of those who are in the most desperate and appalling plight imaginable.

Tony Blair: We will do everything that we possibly can in respect of Sudan and the situation there. The United States and the UK are leading the aid effort in Sudan. I spoke to Kofi Annan yesterday to develop the right strategy. Colin Powell, as my hon. Friend will know, has been in Sudan. My right hon. Friend the Secretary of State for International Development has visited the country. The food is there now but we need to be able to get it through to people. We also need to be able to control the activities of the militias there. We have a set of plans and proposals for both, but I want to make it quite clear that we expect the Government of Sudan to co-operate and, if they do not do so, we will have to consider what further measures to take. It is not acceptable, however, if the aid is there that it does not get through to the displaced people.

Angus Robertson: Despite global instability and military overstretch, Treasury bean counters are undermining Scottish regiments. Defence Ministers are acting like fearties, and the Labour First Minister Jack McConnell will not even stand up for Scottish service personnel, their families or veterans. Will the Prime Minister give the House an assurance that not one Scottish regiment will be amalgamated or disbanded?

Tony Blair: First, the hon. Gentleman will have to await the outcome of the spending review, and any proposals for our military based on it will be set out in future. However, we have increased defence spending in real terms, and we take immense pride in our armed forces, in Scotland as elsewhere in the UK. I regard it as a bit of cheek for the Scottish National party to complain about the state of the British military.

Robert Wareing: Does my right hon. Friend still believe that there are weapons of mass destruction in Iraq?

Tony Blair: I told the Liaison Committee yesterday that, although I was confident that those weapons existed last year, I have to accept that they have not been found. However, let me tell my hon. Friend that there is clearly no doubt at all that Saddam Hussein had weapons of mass destruction, and I suppose that he would accept that. It is the case that he used them against his own people, but it is also true that we have not found weapons of mass destruction in Iraq, although we have found plenty of evidence of intention, capability and intent. I simply say to my hon. Friend that it is sensible to wait for the outcome of the work of the Iraq survey group, but I certainly do not accept in any shape or form that Iraq was not a threat to the region and the wider world. I repeat again what I have said on many occasions: I believe that the world and this country are safer without Saddam Hussein in power.

Michael Howard: Does the Prime Minister agree that someone who backs child suicide bombings and is banned from the United States because of his alleged terrorist links should not be allowed into this country?

Tony Blair: I assume that the right hon. and learned Gentleman is referring to the situation reported in the newspapers overnight and today concerning a particular cleric. My right hon. Friend the Home Secretary has already indicated that we will keep this under strict review. There are rules that must be applied, and they will be applied to this particular individual. I do not want to comment at the moment on his casethat is a decision that my right hon. Friend must make, and he will make it according to the criteria that have been set out. Let me make it clear, however, that we want nothing to do with people who support suicide bombers, whether in Palestine or elsewhere, or terrorists. My right hon. Friend must make his decisions according to the relevant criteria, and he will do so. I will not comment further on the case.

Michael Howard: But why has the decision not already been taken? When I was Home Secretary[Interruption.] Oh yes, crime went down[Interruption.]

Mr. Speaker: Order.

Michael Howard: When I was Home Secretary, I used my powers to ban people whose presence here was not conducive to the public good. I banned them. Why does not the present Home Secretary do the same?

Tony Blair: It is not a party political issue, for goodness' sake. We are totally opposed, as is everyone, to people coming to this country and using their visit as a platform to express views in support of terrorism or extremism of any sort. My right hon. Friend the Home Secretarythe right hon. and learned Gentleman should know this from his time as Home Secretarymust consider the issue and apply certain criteria. He will do so and make the decision accordingly. We have to be sure, however, that if someone is excluded from this country, that is done in a lawful way. That is my right hon. Friend's job, and he will carry it out.

Piara S Khabra: President Bush vowed to capture Osama bin Laden, dead or alive. In view of the latest tape recordings apparently made by bin Laden, what progress have the armed forces made in their search of the border regions of Pakistan and Afghanistan?

Tony Blair: Along with the Pakistani authorities, we continue to search for bin Laden, and there has been nothing to report since the last time I spoke about the matter. My hon. Friend knows that that border region is extensive, and it will take some time until we are sure that we are on bin Laden's track.

Andrew Selous: Lord Steel, who introduced the Abortion Act 1967, now says that the limit on abortions performed for social reasons should be halved to 12 weeks. What does the Prime Minister think?

Tony Blair: That is a matter of free vote and conscience on both sides of the House. I have not had an opportunity to study the evidence in detail, but if the situation has changed, it would be advisable to re-examine the question. Certain criteria set out when abortions are lawful, and if the scientific evidence has shifted, it would be sensible to take that into account. I have not had an opportunity to study the evidence in detail, but I am sure that the Government will study it, and if we have proposals to put before the House, we will put them.

Keith Vaz: The Prime Minister will recognise that pockets of antisocial behaviour still exist, even in the great city of LeicesterI am not referring to the visits over the past few days by so many hon. Members, who behaved quite well. Does the Prime Minister propose to introduce new legislation to toughen up the law on antisocial behaviour, which will help many of our constituents who face that menace, and does he expect to receive cross-party support?

Tony Blair: I hope that there is cross-party support on the issue, and it would be good to receive cross-party support. It would be good to think that all parties in this House had combined in order to defeat the menace of antisocial behaviour, but I must say that the Liberal Democrats have disappointed us up to now. I hope that the Liberal Democrats are honest enough to own up to their policies: they opposed closing down crack houses in 48 hours, they opposed fixed penalty notices for antisocial behaviour, they opposed the speeding up of the process to evict noisy neighbours and they opposed fines for the parents of truants. We are working on the better education of the Liberal Democrats, but as my hon. Friend knows, it is a hard task.

Simon Thomas: If the Government get their way, at the end of this Parliament it will be illegal to swat a pet insect, but it will still be legal to swat a child. How can the Prime Minister justify that approach to the most vulnerable in our society?

Tony Blair: I am still working out the point about the insect. Above all else, people should apply a modicum of common senseI know that that is an alien concept to the hon. Gentleman and his party. To be frank, I think that most people know the difference between abusing a child and administering parental discipline in a sensible way, and I do not believe that we cannot find a common-sense way through the issue. Most people in the country think that there are serious issues to discuss in relation to the abuse of children, and yes, we must make sure that the law is in a proper state, but in this instance, more than any other, the law would benefit from the application of a lot of common sense.

Vera Baird: Does my right hon. Friend welcome this week's Supreme Court ruling that US courts have jurisdiction over the detainees in Guantanamo bay, which at least makes the situation clear? That means that the US courts, and not the President, would set the rules by which the detainees could be tried in the States, and those rules would be fair. Is it my right hon. Friend's preference that the British detainees should be tried over there, or does he still intend that they will return to British courts?

Tony Blair: Our position remains the same: if the Attorney-General is not satisfied that the rules applying to the trials of the detainees at Guantanamo are consistent with the standards that we expect, we need the detainees to return here. That is not the issue at the moment; the issue is making sure that if the remaining detaineesfive are back already, but four are still thereare returned to this country, we have proper mechanisms in place, so that we are sure of our own security and can protect our own security, which is also an obligation of Government.

Christopher Chope: What have the Government got against the 4.4 million people in this country who are aged over 75? Why are they specifically excluded from the NHS improvement plan target relating to reducing deaths from cancer, heart disease and stroke?

Tony Blair: I think that the position of the hon. Gentleman's party is to get rid of all targets in the national health service, so I assume he is saying that there should be no targets for anyone, not that we should extend them to people over 75. I am delighted that he raises the issue, however, because as a result of this Government's measures cancer deaths among people over 75 are down by 10 per cent. and heart deaths are down by 20 per cent. We have nothing against people over 75on the contrary, we have introduced special help for those over 75 who are in poverty, and free TV licences for all. That is more than the Tories ever did for them.

Keith Bradley: In the light of the recent research on the census by the university of Sheffield, which shows that there is continuing inequality in health between the north and the south, will the Prime Minister have a word with the Secretary of State for Health with a view to returning to Manchester the millions of pounds that were stolen from its health services as a result of the appalling failure of the Office for National Statistics during the census to count the thousands of extra people who live in the city of Manchester?

Tony Blair: Apparentlybecause it says so heremy hon. Friend will be pleased to hear that the report of the findings on reviewing the population estimate for Manchester will be published tomorrow. I hope that that means he will be pleased with the findings as well as with their publication. I know that he and other hon. Members from Manchester have raised this issue before; obviously, the Office for National Statistics must undertake to consider it.
	I am sure that my hon. Friend will accept, however, that whatever his concerns about the impact of the census estimates, we still put a major amount of additional investment into Manchester. As a result, as I recently saw for myself on a visit to Manchester, there is an enormous amount of new hospital building and equipment, as well as extra nurses and doctors. I hope that my hon. Friend will be at least partly, if not wholly, satisfied with what he hears tomorrow.

Jonathan Sayeed: Does the Prime Minister believe that Senator Kerry would make a good President of the United States?

Tony Blair: I believe that just as the choice for the British people is a choice that they make, the choice for the American people is a choice that they make.

Karen Buck: This week, Dame Shirley Porter handed over 12 million of the 40 million that she owes for her part in the illegal Conservative homes for votes policy. Will my right hon. Friend join me in congratulating Labour councillors, including Labour leader Councillor Paul Dimoldenberg, and others on their part in exposing and pursuing the scandal over the past 15 years? Does my right hon. Friend understand that most people believe that Shirley Porter is indeed nothing like a dame, and that steps should be taken to remove from her the title of which she has proved so unworthy?

Tony Blair: It says here:
	The Government has no powers to intervene in or judge the settlement that Westminster City Council has reached with Dame Shirley.
	So there it is. I think that I had better leave it to my hon. Friend to make any other comments.

David Cameron: Is the Prime Minister aware that the Government's policy of inclusion is being prayed in aid by educationists and health authorities in order to close special schools? Does he understand that many parents with severely disabled childrenI speak as one of themfeel that the only place outside home where their children will get the care, therapy and chance to blossom that they need is in a special school? Will the Prime Minister ask the Education Secretary to consider that; and will he ensure that common sense prevails and these schools are kept open?

Tony Blair: I agree that some children's needs are obviously best met in special schools. Certainly, the purpose of any policy of inclusion is neither to abolish special schools nor to take children out of an appropriate environment: it is to ensure that if those children are able to be in mainstream schooling, they can be. Of course, I agree that that should not lead to a situation whereby children for whom it is not appropriate to be in mainstream schooling lose the possibility of a special school. I am perfectly happy to ask the Secretary of State for Education and Skills to respond to the hon. Gentleman directly on the points that he raises.

Gareth Thomas: How important is our membership of the European Union to British jobs and overseas investment in the United Kingdom? What would the Tory policy of getting out mean[Interruption.]

Mr. Speaker: Order. Just the first part of the question.

Tony Blair: First, my hon. Friend the Member for Clwyd, West (Gareth Thomas) knows that it is good news that foreign investment is still coming into the country. Much of that is specifically geared to our membership of the European Union and to the activities of companies in Europe. Any proposal that Britain marginalise itself in decision making in Europe or withdraw from the European Union would be disastrous for jobs, industry and investment in this country.

Domestic Tradable Quotas (Carbon Emissions)

Colin Challen: I beg to move,
	That leave be given to bring in a Bill to introduce a domestic trading scheme for carbon emissions; to set a national ceiling for carbon emissions; and for connected purposes.
	The principle that underpins domestic tradable quotasDTQshas been largely accepted internationally and nationally. Everyone who has taken a keen interest in combating climate change will be aware of the principles of emissions trading.
	Many know that the United Kingdom has been a leader in such matters, that we have already established a limited emissions trading scheme and that it is augmented by similar action at European level, as well as by our national allocation plan, which is due to be operational next year. Emissions trading schemes generally work partly on the principle of what is known as contraction and convergencewe set a target to reduce or contract our emissions each year, and eventually our emissions are no greater than anybody else's. The concept of convergence means that we have a right to use only our fair share of carbon-emitting resources.
	The Bill would extend those principles to the domestic marketthat is, to members of the population at large. To date, the vast majority of schemes that any Government have introduced to address the terrible and overriding problem of global warming have relied on getting industry or organisations to adjust their ways. For individual citizens, there has been little more than encouragement, piecemeal energy efficiency grants or other forms of cajoling designed to inspire voluntary activity. However, that does not go far enough, fast enough.
	There are too many opposite influences, which seem counter-intuitive to the ordinary consumer when it comes to doing something about global warming. The first of those influences is, frankly, cheap energy prices. The market has successfully driven down the price of energy in the past few years. At times, it has seemed as though that has been the energy regulator's only policy. Consequently, many people have come to believe that their energy is and always will be cheap. That means that any major investment, either in the grid, in combined heat and power or in renewables is perceived as some sort of imposition, which if pressed with any sense of urgency will lead to unacceptably high energy bills.
	That is the worst form of short-termism, the implication being that, provided that the other costs of climate change do not hit us too hardas happened, for example, with higher insurance premiumswe can dither on as before without worrying too much about the day after tomorrow, to coin a phrase. There is also an all-pervasive influence on the way in which individuals react to questions such as those posed in recent years by the Department for Environment, Food and Rural Affairs, namely, Are you doing your bit for the environment? Are you turning off your light switches, TV and computer stand-bys? Are you recycling, composting and so on?
	The trouble is that when somebody who does all those things discovers that most people are not doing their bitas indeed most people are notit is incredibly depressing. People end up feeling that their little bit will not make the slightest jot of difference to the environment. Getting peopleall 60 million of usto act collectively is never easy, and it is even less easy, I acknowledge, when we feel it will cost us more, especially if a privileged few are seen to benefit.
	Increased fuel duties have had a disproportionate impact on the worse off, as better-off people will always be able to afford higher petrol costs or electricity bills. In what we do to protect the environment, we should always seek to avoid giving an apparent benefit to one group as opposed to another just because they can afford it. So I am not keen on carbon taxation, which would have precisely that effect. The environment is something that we all share and enjoy, and Government policy should ensure that today's generations have equal opportunities to do so fairly and with respect to future generations.
	The Bill stems from an idea that has been worked on by the Tyndall centre for climate change research, and I would like to pay homage especially to the work of Dr. Kevin Anderson and Dr. Richard Starkey on this subject. They are part of a group of people who are exploring ideas and methods for tackling climate change and seeking solutions through changing the way we run things, rather than simply pursuing the technological routealthough the two are, of course, not mutually exclusive, and indeed in this case are highly complementary.
	Domestic tradable quotas would extend the principle of emissions trading to individual citizens. All of us would be issued with our own equal share of the national carbon emissions cake. In the early years of the scheme, the allocation for most of us would be more than we required. For others it would be less. Between the two, a market in surplus carbon units would be established. The market would determine the price, and those who used less energy would obviously stand to make a gain. Carbon units would expire as the consumer used energy, so their opening allocation would reduce as they went along. Energy utilities would automatically deduct units from the individual's carbon allocation account each time they calculated a consumer's invoice.
	Consumers would also have a transaction carda smart cardthat they could, for example, present at petrol stations, just as they now present their reward points cards to get air miles, free cutlery, the collected works of Elvis, or whatever. The technology needed to support the carbon emissions market is no longer a barrier. Those already familiar with reward cards would have no difficulty with this scheme, and the reward in this case would be incalculable. The technology for issuing these smart transaction cards could be combined with that used for another card currently under consideration by the Government, which could make that card even more popular than I think it will be.
	In these 10 minutes it would be impossible to address all the detailed issues that arise from the Bill, and I would not deny that more work is needed on it. But as the realisation continues to sink in that global warming is no longer just a threat but a dangerous reality, we will certainly have to extend our response to it beyond the merely voluntary. To do that, we must have a scheme that is equitable, fair and efficient. This is not rocket science; it is common sense. More people will do their bit for the environment if they know that it will make a difference, and understand that by the strength of our common endeavour we achieve more than we achieve alone.
	I am not suggesting that we print those wordsfine though they areon the back of our smart cards, but when our Prime Minister takes the chair of the G8 summit next year, and indeed the presidency of the European Union, it would be the most serious challenge imaginable to his fellow leaders if he were able to say that the 60 million citizens of the UK were doing their bit for the environment, because that commitment alone would demonstrate that we had understood our uncompromising responsibility to face this challenge urgently and equally. In commending the Bill to the House, I urge hon. Members to take a look at the Tyndall centre's website, where they will find recent material explaining more fully how domestic tradable quotas might work.
	Question put and agreed to.
	Bill ordered to be brought in by Mr. Colin Challen, Mr. Peter Ainsworth, Mr. David Chaytor, Ms Joan Walley, Mr. Tony McWalter, Brian White, Mr. John Battle, Mr. Andrew Stunell, Mr. Simon Thomas, Sue Doughty and Mr. Gordon Prentice.

Domestic Tradable Quotas (Carbon Emissions)

Mr. Colin Challen accordingly presented a Bill to introduce a domestic trading scheme for carbon emissions; to set a national ceiling for carbon emissions; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 15 October, and to be printed [Bill 136].

Sue Doughty: On a point of order, Mr. Speaker. This is not the first time that when a ten-minute Bill has been introduced, the Minister from the relevant Department has not been on the Treasury Bench to hear what was said[Interruption.] The Minister was not present at the commencement of the speech by the hon. Member for Morley and Rothwell (Mr. Challen), and did not arrive for three minutes, by which time a substantial part of the speech had been missed. Can we ensure that Ministers hear the full speech on a ten-minute Bill, so that they can take account of the content?

Mr. Speaker: When I was in industry, the first three minutes were not counted: you were considered a good timekeeper, and the Minister is a good timekeeper.

Orders of the Day
	  
	Finance Bill
	  
	[2nd Allotted Day]

As amended in the Committee and in the Standing Committee, further considered.

Clause 5
	  
	Rates

Andrew Tyrie: I beg to move amendment No. 16, in page 4, line 24, at beginning insert
	'Subject to the provisions of subsection (7).'.

Mr. Speaker: With this it will be convenient to discuss amendment No. 17, in page 4, line 24, at end insert
	'(7)   On any occasion when the average closing spot price of Brent crude oil has been at or above 37.84 US dollars per barrel for a period of fourteen days, the Chancellor of the Exchequer shall make regulations suspending the operation of subsections (1)(a) and (1)(c) of this section.
	(8)   In this section
	   Brent crude oil means oil from the Brent oilfield in the North Sea; and
	   average closing spot price means the mean of the closing spot prices for Brent crude oil quoted on the International Petroleum Exchange on each day on which that exchange is open for trading within the period of fourteen days.'.

Andrew Tyrie: The purpose of the amendment is to make sure that the Government implement their stated policy. The Prime Minister, the Chancellor and the Economic Secretary, who is with us today, have all promised that if oil prices remain high, they will remove in August their planned increase of tuppencethe increase they intend to put through, and have announced in the Budget they will put through, in September.
	Unfortunately, instead of giving a clear statement in the House, or even an unambiguous press release, this review has been announced through some unattributable press briefings, whose status it is difficult to know. It is not difficult to work out what headlines the Government wanted, which is what they got. I have some here: for example, Brown confirms plan to scrap rise in fuel duty, and, in The Daily Telegraph, Brown plans to abandon fuel duty increase.
	Our amendment would force the Government to deliver on the promises that they have made to the public. It will work in this way: if the average closing spot price of Brent crude, the leading benchmark, rises back to the price at the time that the Government did their press briefings, the duty hike will be suspended. On 3 June, the day of those briefings, the closing spot price was $37, as indicated in the amendment. Under the amendment, the oil price will have to remain high for a period of two weeks before it triggers the suspension of the duty rise; a blip for a day or two will not be sufficient. Incidentally, today's price is less than $1 away from the price at the time of that announcement; we are back in the danger zone for oil prices and duty hikes again.
	The Economic Secretary may have some technical objection to my amendment. I have no doubt that he will have been heavily briefed on such things, but I should be grateful if he would address the principle. If oil prices return to the levels at which they stood when the Chancellor authorised those friendly noises for road users, will the Government suspend the duty hike? If the Economic Secretary cannot say yes, all those press briefings and reassurances that road users have heard will begin to look a bit hollow. People will be forgiven for thinking that they are just another ploy to acquire a few weeks' respite while prices were high.
	We know the level of fuel prices that is needed to trigger friendly noises from the Government. What we really want to know is what increases are needed to trigger action. At the time of the Budget, the Brent crude spot price was over $34 a barrel. At the time of the press briefings, it was just over $37. That tells us that when the Government set the rates, at the time of the Budget, they already knew that the price was at the very edge of what was tolerable. They knew that a mere 10 per cent. rise would be too muchhence their press briefings.
	From the Government's response to the amendment, we will find out whether they really meant what they briefed or whether it was another case of media spin. We have had quite a bit of that. The Prime Minister has done the rounds, saying on several occasions that he sympathises with road users. Road users do not need sympathy from the Prime Minister. We would rather have firm commitments, which is what we would get from our amendment. If the Government will not accept it, the public will see that they are saying no to their own promises.
	It is worth reflecting for a moment on how we got where we are. How did the Government get themselves into a position where a mere 10 per cent. rise in the oil price after a Budget can lead them to start briefing the press that they will reverse their policy of an increase in September? The short answer is that they are scared stiff of a repetition of the fuel protests that we saw during the last Parliament. The reason there might be protests is that petrol and diesel prices are already higher in Britain than in almost any other country. We have those levels because the Government took the price there. Under the Labour Government over the past seven years petrol prices at the pumps have risen from about 60p to 80p. Two thirds of that increase has been tax going to the Government.
	The longer answer is that, in taking any decision, the Government are susceptible to opinion polls. I have no doubt that they have been doing their own private polling, which was subsequently supported by an ICM poll shortly after the Chancellor's press briefings. The Sunday Telegraph reported:
	An ICM poll for The Telegraph reveals a high level of support for demonstrations similar to those that brought chaos to Britain four years ago. It also shows widespread public anger at plans by Gordon Brown, the Chancellor
	to add 2p to the duty on a litre of petrol in September.
	It is clear that the Government were getting signals like that from their focus groups and private polling. That is the reason for their announcement in June.

Alex Salmond: As I recall, there was some confusion a few weeks ago about whether the Leader of the Opposition supported such protests. Can the hon. Gentleman clarify the position of the Leader of the Opposition, as he was not able to do so?

Andrew Tyrie: It is for the Government to decide what they intend to do about fuel duty, rather than for the Opposition to decide what they intend to do about fuel protests. I take the hon. Gentleman's point. By implication, he is just as concerned and upset as I am about the scale of the fuel price hikes.
	The Economic Secretary and the Government have embarked on a substantial campaign to convince us that the price hikes are something to do with world oil prices, not anything to do with the rise in fuel duty. He said in Westminster Hall that high petrol and diesel prices are
	a problem of world fuel prices, not UK fuel duty.
	That is clearly not true. The key cost to the motorist is the taxman, not OPEC. As the AA pointed out,
	What Gordon Brown does is more important than what the world price does.
	What the Economic Secretary should have said is that high petrol prices at the pumps are a problem of UK fuel duty, not world fuel prices. That would have been a much more accurate statement.
	The Economic Secretary may say he needs the money. That is what he should say about the hikes. He came close to it in Westminster Hall when he said, rather revealingly:
	It is important . . . that we have the strength to get the balance right between a fair deal for the motorist and the haulier
	and
	the stability of public finances.[Official Report, Westminster Hall, 8 June 2004; Vol. 422, c. 2930WH.]
	The public finances are no longer stable. The Chancellor is faced with a rise in borrowing, even though the economy is doing well. Tax revenues are short, which they should not be in an upswing. Raising money from motorists and road hauliers is one way of filling that hole, which is a hole of the Chancellor's making. He cannot easily afford to make concessions on petrol prices, but in what may become an election year, he cannot afford another fuel protest either. I fear that that is why we have had all those press briefings.
	All the same, the Minister can reassure us, as I hope he will. He can accept the amendment or table one of his own that will have a similar intended effect. He can back the promises of his own boss with a statutory requirement, and he can give the motorist and the road hauliers a little more certainty in the months ahead, at least for the second half of this year. I very much hope that he feels able to do so.

Alex Salmond: I am rather sympathetic to the idea of trying to establish a link between the world oil price and uncertainty within it, and the tax position in relation to fuel; but I am not convinced that the amendment is the best way of doing that. In what purports to be a substantive amendment, the proposal that, on the basis of the date of a supposed spin or leak from the Chancellor or the Prime Minister, a device should kick in in response to a set international price of oil strikes me as rather on the light side. Front Benchers nod. Indeed, like crude oil, the amendment is extremely light.
	I do not think that the argument behind the amendment has been advanced very powerfully, so I shall take the opportunity to advance it now. In fact, the argument in favour of such a link emanates from the Chancellor himself. As I recall, he delayed the duty increase until September as a result of instability in world oil markets. Presumably he is now considering carefully whether they are stable or unstable; any such consideration is, I think, likely to result in the conclusion that they are unstable, and subject to a variety of events. The Government's intervention in Iraq seems to have made things no better in that regard. According to the Chancellor's own logic, there is clearly a case for a review or assessment of the fuel increase that was due in September.
	Another option would be to base the world oil price not on the date of leaks from the Government, but on the forecast in the Red Book, which, if I remember correctly, was $27.5 a barrel. The price has clearly exceeded that for some time. As the projection in the Red Book has been overtaken by events, I hope that Ministers will give us the latest projection for corporation tax and North sea revenues for the current financial year.

Andrew Tyrie: I am perplexed by the figure of $27.5. I should be grateful for sight of the SNP's heavier amendment; I should also like to know which marker crude the hon. Gentleman is referring to.

Alex Salmond: I am speaking from memory, but I thought that $27.5 for Brent crude was the assumed price underlying the Treasury projection of oil revenues amounting to 3.6 billion in this financial year. Conservative Front Benchers shake their heads. I hope that Ministers can clarify the matter, but my recollection is that $27.5 was the underlying price assumption at the time of the Budget. Now Conservative Front Benchers are agreeing with me. That is terrific: I have managed to swing them round.
	I am not talking about the price itself. I am talking about the price assumed by the Treasury for the coming year, on the basis of which it projected the corporation tax from oil and gas revenues. Is that now established in Conservative Members' minds? Surely that price is the key, because on the basis of that price the Government assumed that there would be 3.6 billion of corporation tax revenues from North sea oil. The take will clearly be substantially higher. We may argue about whether it will be 500 million higher, 1 billion higher or even more, but it will be substantially higher almost regardless of any foreseeable change in the price for the rest of the year. Most of this year's corporation tax has already been set on the basis of current and past oil prices.
	The Government ought now to be able to judge whether that additional windfall justifies a move to stop the increase in duty this September. Given the Chancellor's own argument that he delayed the increases in order to judge the extent of instability in the world markets; given the acknowledged instability and high prices that prevailed; and given that the Government are due for a windfall over and above Treasury expectations at the time of this year's Budget, they should now be in a position to come up with not a leak, suggestion or assumption, but a firm assessment and some sort of decision. With respect to Conservative Front Benchers, I feel that that is a better benchmark than the prevailing price of Brent crude on a day when the newspapers suggested that the Chancellor was trying to leak the fact that he was about to do something.
	The Government have implicitly acknowledged that there should be some relationship between the prevailing level of duty and the world oil price. If that were not the case, the Chancellor would not have postponed his announcement until September. The Government should now be able to estimate the amount of the expected windfall, and should be able to give the information to us and our hard-pressed constituentsespecially in Scotland, which suffers the double whammy of receiving no benefit from the additional oil and gas revenues flowing from our sector of the North sea, and being the part of the UK most exposed to rising fuel costs affecting not just consumers but industry and the retail and distribution chain.
	On behalf of the people of Scotland and of Members of Parliament, let me ask Ministers whether they are in a position to tell us that they will negate this year's planned rise in fuel duty.

Vincent Cable: The amendment is useful if it helps to persuade the Minister to clarify his intentions. I rather agree with the hon. Member for Banff and Buchan (Mr. Salmond) that this is not the most helpful way of framing legislative change, but the exercise itself has been useful.
	We should not, however, lose sight of the fundamentals. Putting aside the question of an oil price spike and how the Government might respond to it, I think it eminently sensible for the Government to introduce the basic principle of a duty price increase. In normal circumstances that would have been unexceptionable, and I doubt that we would have been dealing with amendments like this had there not been an oil price spike.
	It is worth reiterating the underlying reasons. The cost of motoring has fallen considerably below the cost of using other modes of transport, as the Government's own transport advisers have been pointing out since 1997. The cost of motoringadmittedly, that includes vehicles as well as fuelshas fallen by about 5 per cent. in real terms, while the cost of bus travel has risen by 8 per cent. and household incomes by about 20 per cent. During the much longer period since the first oil shock about 30 years ago, the cost of motoring has fallen in real terms while the cost of public transport has risen by between 70 and 80 per cent., depending on the mode of transport involved. The system of price incentives is heavily skewed against public transport.
	The proposed arrangement for duty increases makes perfect sense in terms of both transport and environmental policy, and I do not criticise it on those grounds. There is, however, a problem over how that is handled in the event of sudden oil price shocks. There are a couple of reasons why the Government must respond in such circumstances. First, as the hon. Member for Banff and Buchan pointed out, at such times the Government enjoy a windfall, partly from a rise in VAT in proportion to the price and partly from the taxation of the upstream. I think the sense of injustice at the revenue windfall enjoyed by the Government, which prompted the original oil price protests, led to a cross-party consensus that we must move away from the escalator.
	The other problem at times of high oil prices is that they feed directly into inflation. If inflation goes up, even on a once-and-for-all basis, interest rates rise with all the attendant consequences for the British economy. So when the oil price shock occurred a few weeks ago, I took the view that the Government would be wise to announce a postponement of the duty increase, were such conditions likely to continue. I still take the view that that is the right policy.
	The international oil market conditions suggest that we may well experience a much worse shock in the coming weeks; indeed, that is entirely plausible. As of today, prices are back above $40, and the basic conditions are very serious. There is hardly any spare capacity in the system. Saudi Arabiaa country that is potentially highly unstable and vulnerable to sabotage in various wayshas a spare capacity of some 1 million barrels a day. The situation is quite different from that which pertained 10 years ago. As a result of the war, Iraq's own production has fallen rather than risen since the days of Saddam Hussein, and the conditions for increasing it are not promising.
	So the world oil economy is poised on a very difficult knife edge. Demand is rising and there is very little spare capacity. It is easy to see how prices could simply go through the roof in such circumstances. If that happens, it is obviously right that the Government withdraw the tax increase until the market stabilises. I am not arguing for a cancellationthat would be irresponsiblebut that the increase should be postponed until conditions are more stable.
	It would be useful if the Minister explained a little more precisely what the Chancellor of the Exchequer actually meant by a postponement. What would be the conditions under which a postponement would take place, and when will he announce it? If the amendment succeeds in getting a little clarity in that regard, it will have been worth tabling. That said, in the light of the way in which it is phrased, my colleagues and I would not want to vote for it.

Christopher Chope: I congratulate my hon. Friend the Member for Chichester (Mr. Tyrie) on his ingenuity in tabling this amendment and thereby putting the Government on the spot. Their policy on this issue is very confused. For years, they have been telling us that, in order to restrict demand for fuel in this country, they have to raise the price, and that such increases are being implemented for environmental reasons. We then had the spectacle of the Chancellor pleading with the countries of the Organisation of Petroleum Exporting Countries to increase the volume of fuel that they produce. To a simple soul such as me, that seemed incompatible with the Government's earlier approach.
	We must remember that we are fortunate in having a petroleum industry that delivers incredibly efficient services, which is why we have the cheapest pre-tax fuel prices in Europe. But because of the Government's taxation policy, we have by far the most expensive post-tax fuel prices in Europe. The amendment tabled by my hon. Friend amounts to relatively small beer; none the less, when motorists feel that they are being put upon by the Government, it is the straw that breaks the camel's back. As has been pointed out, the Government are gaining both from increased taxation and from the windfall resulting from the increase in the raw material price. As the hon. Member for Banff and Buchan (Mr. Salmond) rightly said, the Government will receive a windfall from North sea oil revenues and, as the hon. Member for Twickenham (Dr. Cable) pointed out, we should also consider the big windfall arising from the payment of VAT on the pump price.
	If the Government accepted the amendment, there would be no overall loss of revenue because they will in any case be making those windfall gains. Perhaps that is why the Chancellor was able to suggest that the Government might think again about increasing the price of fuel in the autumn. However, as with most things that this Government are doing, I suspect that it has more to do with the possible situation in the autumn. The Prime Minister has made it clear that he might want to run for cover and have an early general election, if he thinks that he can get away with it. He has instructed the Cabinet to clear the decks and one way to avoid the embarrassment associated with imposing a fuel price hike during a general election campaign is for the Government to make the announcement that they suggested they might make. The amendment enables us to get the Government to come clean on this issue. Instead of giving off-the-record briefings to sympathetic journalists, they should be up-front and tell the House exactly what they have in mind.
	We should remind our constituents of the very high fuel taxes and overall taxes on motorists, which have gone up from some 31 billion when this Government took office to some 44 billion. Precious little of that is actually being spent on the road infrastructure. Yesterday's feeble announcement, which was grandly entitled Roads Policy, amounted merely to a consultation document on the possible widening of the M6, using private finance rather than taxpayers' money, and extra lanes for those with chauffeurs, so that they can gain an advantage over the ordinary motorist who cannot afford a chauffeur. The announcement covered up the fact that, while raising these extra revenues from the motorist, this Government are failing to deliver improved services.
	As I have said before in this House, one reason why more people are being killed on our roads under this Government is that they have failed to invest in engineering improvements on our highways. It has long been recognised that there are three elements to reducing accidents and increasing road safety: education, engineering and enforcement

Mr. Speaker: Order. As the hon. Gentleman might know, the amendment is somewhat tighter than that. He is going wide of it.

Christopher Chope: I certainly accept, Mr. Speaker, that I am getting carried away in my enthusiasm for articulating the concerns of the motorist. Motorists have to pay these extra taxes, but they are getting nothing in return. My hon. Friend the Member for Chichester has suggested that the Government are being coy about this issue because they want to use the extra revenue to fund the black hole in their figures and their extra borrowing. But it is clear from what has been said that they will in any event make a windfall profit from the increase in the price of Brent crude, which is likely to stay high.
	The amendment is modest, and in that regard I am attracted by much of the argument of the hon. Member for Banff and Buchan. There is indeed a case for going much further, but my hon. Friend the Member for Chichester is making a modest proposal in the hope that we can persuade the Government to accept it. My constituents and I will certainly be very disappointed if this modest amendment is not accepted.

Michael Weir: It will come as no great surprise to discover that I agree with the comments of my hon. Friend the Member for Banff and Buchan (Mr. Salmond). I have some reservations about amendment No. 17, which states that, if the price of Brent crude stays
	above 37.84 US dollars . . . for a period of fourteen days, the Chancellor of the Exchequer shall make regulations.
	I wonder whether that is really strong enough, because when fuel prices start to rise, what is required is quick action.
	The recent spike in fuel prices has had a devastating effect on many parts of the rural economy. In areas such as my own, petrol has gone up by well in excess of 20p a gallon in a very short time. Such an increase affects everything. It affects private motorists such as us, who need our cars to get about in rural areas because the alternative transport infrastructure simply is not there. It is all very well to argue on environmental grounds that we should take the train or the bus; that is fine if such transport exists and can get people to where they want to go, when they want to go there. I can take a train from Montrose to Arbroath, or a bus from Montrose to Brechin, but I cannot get from Brechin to the top of Glenisla. We need to travel all around our constituencies and many of our constituents have to do the same in the course of their occupations.
	Worse still, the fuel price rise affects everything that has to be transported around our constituencies. For example, shop goods have to be transported by road because there is no alternative. A spike in the fuel price means that everything, including the loaf of bread in the local shop, goes up because such increases have to be passed on to the consumer.
	We are told that this is an environmentally sound policy, but I am not sure what is environmentally sound about adding to rural depopulation. I read an interesting article in The Times during the oil price hike. I hope that it was tongue-in-cheek, but it argued that, if people living in rural areas could not afford the price of petrol, they should move to the cities. That is a terrible indictment of how rural areas are seen by some metropolitan areas. Rising oil prices affect us greatly.
	Fuel tax is a huge part of the price of petrol. What interested me about the recent hike in oil prices was the speed at which the price at the pumps went up, following the increase in the price of oil in the international markets. I am no oil expert, but I imagine that there is a time gap between buying oil and the international market refining it and selling it on as petrol. I cannot help wondering whether there has been profiteering by some of the oil companies, which is a wider issue that the Government should examine.
	The level of fuel duty is important. In my view, it must be brought down in rural areas. As pointed out to the Government on many occasions, provision exists under European law for derogations to allow lower fuel taxes in rural and remote areas where road travel is an essential service. That has been used very successfully in the Greek islands, but not in the islands or remote highland areas of Scotland. [Interruption.] My hon. Friend the Member for Banff and Buchan reminds me that Greece went on to win Euro 2004, so perhaps there is a huge impetus for Scotland to follow suit if we can revive our football team.
	Joking aside, this is a serious issue, because the cost of transport in rural areas is so large. In the island areas of Scotland, it is even larger and derogations could be used to help overcome the problem. The Government should look further into using derogations from fuel duty in certain defined areas and deal with the activities of oil companies. I do not share the faith of the hon. Member for Christchurch (Mr. Chope), who spoke about the oil companies. There has been an element of profiteering, as the price has gone up instantly at the pumps when the oil price has increased in the international market. It could be argued that the point is to level up the prices over a period, but more should be done to examine what is going on.
	Just a few oil companies govern petrol in this country and it was interesting to note that the supermarket chains were able to bring the price down again very quickly. Only then did the oil companies follow suit. It is a complex matter and fuel duty is at its heart. The Government should do more to look into what is going on, because the problem is a matter of huge concern in rural areas. That will continue, as oil prices are rising again. We were told that the last spike was the result of terrorist raids in Saudi Arabia. We are now told that the price could rise substantially because of the problems of the Yukos oil company in Russia and as a result of incidents in parts of the middle east. Our whole economy is affected and the Government must get it right if they are to avoid serious problems.

John Healey: Amendments Nos. 16 and 17 would remove the duty increase for ultra-low sulphur diesel and petrol planned for September this year at a time when the international price of Brent crude oil is at or above $37.84 per barrel. For the benefit of the hon. Member for Chichester (Mr. Tyrie), today's Brent crude price is almost $2 lower, not $1 lower, than his level. At noon today, it was $35.97 a barrel.
	I have to tell the hon. Member for Christchurch (Mr. Chope) that this is not a modest amendment. On the contrary[Interruption.]

Andrew Tyrie: I do not know what prices the Economic Secretary is using. It shows why we really need Bloomberg in the LibraryI requested it, but it was turned downto ensure that we have accurate and up-to-date market prices for debates. It would cost 5,000 a year, which I believe would be a good investment. I am glad to have been able to get that point on the record. I checked the prices at 11.45 am and unless something dramatic has happened, the Brent spot price is $36.7 a barrel and the forward price for Augustwhen the Economic Secretary says he is going to conduct his reviewis $37.1. That is less than a dollar away from the price stipulated in the amendment.

John Healey: No doubt the House authorities will study closely the hon. Gentleman's remarks. On the apparent discrepancy, it may be something for Bloomberg to take up with Reuters. Those two market sources may have different figures.
	My serious point is that the amendment is not modest, as the hon. Member for Christchurch claimed that it was. It is an extraordinary declaration of new policy from the shadow Chancellor and his team. I take it that Conservative Members will back it up by voting for the amendment this morning. They are seriously saying that, if the price of oil is above $37.84, they will not implement the usual inflation increase in fuel duty each year. The usual inflation increase simply ensures that fuel duty maintains its value and its contribution to the public purse. Let me tell the hon. Member for Chichester that that approach amounts to another hole in the Tory spending plans of at least 750 million a year and that many of his shadow colleagues who are responsible for sectors already facing deep cuts will not be best pleased with his arguments today.

Andrew Tyrie: The Economic Secretary knows that that will not wash. He knows perfectly well that the amendment will not take effect until the next Budgetsix months away. He also knows that, as the hon. Member for Banff and Buchan (Mr. Salmond) said, though I did not agree with all his points and I am not sure that he fully understood some of mine, that the net effect of the increase

Mr. Speaker: Order. The hon. Gentleman will have a chance to reply and he is supposed to be making an intervention, which should be very brief and also about petrol duty.

Andrew Tyrie: The hon. Member for Banff and Buchan correctly said that the overall revenue effects of changes in oil prices over the last few months are highly favourable to the Government, who will benefit by a ratio of at least 2:1 and possibly 3:1 on my calculations. That is the ratio of increased revenue for every pound lost under the amendment.

John Healey: Clearly this is a six-month measure, not a serious one. It is simply a short-term reaction to complex current events and not a sensible way to make policy. The Tory plans mean that when the daily oil price goes up, the inflation increase is withdrawn. Presumably, when the oil price goes down, the duty increase will be reintroducedthough we are not told that. It is a hopeless hokey-cokey provision. I must tell the hon. Member for Chichester that it is not possible to manage economic policy and the public finances on such a simplistic and unstable basis.

Alex Salmond: It may well be a hokey-cokey amendment, but its weakness is not that it is too bold, but that it is far too modest. Will the Treasury Front Benchers address themselves to the question of how much additional revenue they now expect, given that international oil prices are way beyond the Budget assumptions? What do they intend to do about the windfall revenue in the light of the September rise?

John Healey: If the hon. Gentleman can be patient, I intend to come on to the points that he and the hon. Member for Angus (Mr. Weir) have raised.
	We are conducting a serious debate on the amendment before the House and it is important to realise that there is no historical precedent for such an approach when the Conservatives were in government. There has, of course, been a precedent for higher oil prices. However, unlike during the periods when oil prices were high under the Conservative Government, the UK economy now has the strength and stability to withstand some of these difficulties.
	In late 1980, for example, when oil prices reached $40 a barrel, inflation was above 15 per cent., interest rates 14 per cent., and gross domestic product had contracted by 4 per cent. over the year. In 1990, when oil prices reached $40 a barrel, UK inflation was almost 11 per cent., interest rates 14 per cent., and the British economy had once again entered recession. Today, as a result of Labour's management of the economy, the UK enjoys the longest continuous growth on record, the lowest sustained inflation for 40 years and unemployment at its lowest level in a generation.
	Turning to the points raised by the hon. Member for Banff and Buchan, if he consults the Red Book and my right hon. Friend the Chancellor's Budget statement, he will see that the delay in the usual increase in inflation is designed to coincide with the differential that we determined to introduce on 1 September to encourage the switch to sulphur-free road fuels.
	The hon. Gentleman asked about revenue projections. He has been in this House a long timea very long time, in some people's booksand will know that such projections are updated and published at the time of every pre-Budget report and Budget. We do not do those calculations or publish the projections on a day-to-day basis.
	Based on assumptions audited by the National Audit Office and published at the time of the Budget, the crude oil price from which the 2004 figures were derived was 27.40p a barrel. The hon. Members for Banff and Buchan and for Twickenham (Dr. Cable) both talked about a windfall for the British economy resulting from the rise in oil prices. While it is true that North sea revenues increase as the oil price rises, the broader effect on public finances is much more complex.

Alex Salmond: I think that the Economic Secretary meant to say that the oil price was $27.40 a barrel. However, it was suggested that the matter was under review. If so, that review must include the Treasury's new expectations of what would be a reasonable assumption for corporation tax and other oil receipts for this year. With respect to the Economic Secretary, I maintain that any responsible Treasury must do those calculations if an assessment has to be made soon about whether to go ahead with the duty increase. So where are they?

John Healey: The review by my right hon. Friend the Chancellor, and the decision that he takes, will take into account all the economic, social and environmental factors in such a complex decision. North sea revenues may rise with the oil price, but the broader effect on the public finances is much more complex. The overall effect in respect of the economy, business profitability and Government expenditure is broadly neutral.

Christopher Chope: On 3 June, a few days before the European and local government elections, the Chancellor of the Exchequer led us to believe that he was thinking seriously about not increasing fuel duty this autumn. Was he speaking through his hat?

John Healey: My right hon. Friend was not speaking through his hat. In fact, I do not think that I have ever seen him wearing one.
	The hon. Member for Angus (Mr. Weir) described vividly the journeys that he can and cannot make across his constituency. I was almost there with him, but derogations for road fuel duty based on regions are, basically, prevented by European law. To get them, we would need the agreement of all 25 EU member states. That is not a viable policy proposition.
	The amendments are flawed in both principle and practice. They do not recognise that, if duty on ultra-low sulphur diesel and petrol were reduced because of increases in the Brent price, the duty on sulphur-free diesel and petrol would be higher than that on the ultra-low sulphur fuels. That would wreck our aim to introduce those fuels at the earliest possible point and our plans to get the environmental benefits that would follow.
	The amendments adopt the wrong approach. The right approach is the one pursued by the Chancellor. It has not been set out in private briefings, but placed on the public record by the Chancellor and the Prime Minister. The problem that we face is the world oil price, not UK duty rates. Therefore, it is right that we concentrate on oil supplies and on ensuring that OPEC meets its targets for sustainable prices.
	The Chancellor has been at the forefront of those discussions. He and other Finance Ministers will continue to press OPEC to meet the increased production targets that have been set and to argue that we should go further still.
	We have said that we will review progress in reducing oil prices and that we will make a judgment on the planned duty change due on 1 September. I urge the House to reject the amendments.

Andrew Tyrie: As my hon. Friend the Member for Christchurch (Mr. Chope) said, my amendment is modest. The hon. Member for Banff and Buchan (Mr. Salmond) was less charitable, and called it light. The amendment is short, but its clarity seems to have elicited some information from the Government. I shall come to that in a moment. The hon. Gentleman did not offer a clear alternative, only general suggestions for a more rigorous approach.

Alex Salmond: The clear alternative is for the Government to say how much of a windfall they expect. I am concerned by what the Economic Secretary said about the effect being neutral and I presume that that is based on an assumption of lower economic growth. If so, he should tell us how much of a direct windfall the Government expect and the size of the fall in economic growth that they now forecast. The Economic Secretary's message was very negative.

Andrew Tyrie: The hon. Gentleman and I seem to be working together more closely than a moment ago.

Alex Salmond: indicated dissent.

Andrew Tyrie: I do not want to wreck his party's prospects, but I agree with what the hon. Gentleman just said. It would be extremely helpful if the Government made a clear statement, perhaps in a letter, of the overall effect of oil price rises on the public finances. I should be grateful if the Economic Secretary would publish the detailed calculations on which his remarks were based.

John Healey: I made it clear in my remarks that our main assumptions are audited by the NAO. We publish them in the pre-Budget report and the Budget. That is the time scale to which we work and when the information is made available. A broadly neutral effect is more likely than the large windfall that Opposition Members seem to think will benefit the British economy.

Andrew Tyrie: The Economic Secretary has alluded to some publications with which I am familiar, but I would not feel able easily to draw the same conclusions. I do not want to linger on this point, but I hope that he will help us by sending a letter pointing out where we can find numbers that are clear and unambiguous. The point at issue is valuable, and the House and the country should have deeper knowledge of it.
	The hon. Member for Twickenham (Dr. Cable) delivered a typically elegant and interesting speech. He is always thoughtful, but today he seemed almost to be pointing in two directions at once. [Interruption.] It is rare for Liberal Democrat Members to do that, but occasionally it can happen inadvertently. Initially, he seemed to support the principle behind the amendment, even if he did not accept the detail. Those were more or less the words that he used, but almost in the same breath he quoted figures that implied that motorists are undertaxed and that they should pay more in tax.

Vincent Cable: indicated assent.

Andrew Tyrie: The hon. Gentleman is nodding in agreement. Motorists should therefore know that the Liberal Democrat party's policy is to increase taxation and to impose higher levels of duty on diesel and motor spirit. That message will not be lost on people in the months ahead.
	The Economic Secretary said that my amendment was a short-term measure and could not be supported. If that is so, why have the Government briefed the press about their willingness to introduce just such a short-term measureto suspend the duty rise for six months? Why are they doing exactly what they say should not be done? They are considering a measure along the lines of the amendment, or at least they are trying to get the best publicity that they can for doing so.
	The Economic Secretary called the amendment hokey-cokey. I am not sure what he meant, but the only hokey-cokey activity going on here has been the Government's briefing of the press, when they should have explained their policy to the House. We still do not know exactly what their policy is.
	I come back to my central point and give the Economic Secretary one last opportunity. Will the Government give us a clear commitment that, if prices rise and stay at the level that they were when the Chancellor gave his friendly press briefings, they will set aside the September increase in fuel duty? Will they give us a clear answer to that question? If they will not, we will be forced to divide the House on the issue.

Question put, That the amendment be made:
	The House divided: Ayes 109, Noes 250.

Question accordingly negatived.

Peter Kilfoyle: On a point of order, Madam Deputy Speaker. When the last vote was taken, a number of right hon. and hon. Members were in the Marquee. No bell rang down there. May I ask you to ensure that the bells are put into effect? It is obviously rather disconcerting to hear that there is a vote when the information on that vote does not extend throughout the Palace.

Madam Deputy Speaker: I thank the hon. Gentleman for bringing that matter to the attention of the occupant of the Chair, and I will ensure that the Serjeant at Arms is aware of his comments.

Clause 28
	  
	The non-corporate distribution rate

Vincent Cable: I beg to move amendment No. 38, in page 23, line 26, leave out '19%' and insert '5%'.
	My hon. Friend the Member for Yeovil (Mr. Laws) spoke on this subject at some length in Committee, and I should like to say a few words on it now. Our aim is to find a somewhat more elegant way to back down than the Government have found in their retreat on the zero rating of incorporated companies in respect of corporation tax. We know the storyI need not rehearse it at lengthbut the policy has had disastrous consequences. There was a 45 per cent. increase in incorporation in a year and an estimated revenue loss of 1 billion. The Government have had to retreat, and they have chosen to do by introducing a differential tax rate, with a 19 per cent. duty on distributed profits from small incorporated companies, which affects hundreds of thousands of companies that draw their incomes from distributions.
	The issues of principle have been debated backwards and forwards. What has emerged very clearly is that the Government's U-turn has managed to antagonise several groups of people simultaneously for different reasons. First, there are all those people who incorporated their companies in good faith because they believed the Government's arguments in support of incorporation. They invested in financial advice and the associated costs. Having followed the Government's advice and responded to the incentive that they were given, the overwhelming bulk of those who draw their income in the form of dividends now find themselves penalised by a high rate of tax.
	Secondly, those whose small companies were already incorporated before the tax inducement and were perfectly happy with that status now face an additional, different and more complex tax regime than before. Thirdly, those with unincorporated companies who felt a sense of grievance that they were treated differently from incorporated companies still feel that they are treated differentially. If they plough back their profits into their companies, they are taxed in a way that incorporated companies are not.
	There has been a general sense of frustration about the way that the matter has been handled. Clearly, the Government have had to beat a retreat; the issue is, how should they do that while causing minimum disruption and complexity? We tabled the amendmentmy colleagues tabled a similar one in Committeeto try to find a somewhat better way.
	There are two fundamental problems with the route that the Government have taken. First, they have introduced another change to a system that must almost certainly change again in the future. I understand that they are undertaking a review of the issuethat is prudent and necessarybut the review will probably take a year to complete. There will presumably be a consultation document, and the tax regime may well change again. The context is that the tax on such companies has already changed four times in quick succession: from a rate of 20 per cent. to one of 10 per cent; to a zero rate; and now to a zero rate plus the extra tax on dividend distributions. There is a high rate of flux, with all the associated costs of accountancy and financial advice. The Government propose to make another big change. Would it not better to hold off and make a much more modest adaptation of the type that we propose?
	There is a second complexity. Those in industry and the Inland Revenue have been involved in a vigorous debate about tax complexity and whether the Government's proposal will make life extremely difficult for those in small businesses. The Select Committee on Economic Affairs produced a thorough report on the issue. It has no particular axe to grind. It is an all-party report and no voting was involved, so we are dealing with people who considered the issue in a fairly detached way. I shall simply quote a couple of references from the House of Lords report, which gives a reasonably balanced assessment of the complexity produced by the Government's changes. Paragraph 135 says:
	From the evidence we have received on the issue of technical complexity we noted that there was no meeting of minds between our private sector respondents and the Revenue. In our view, this issue falls to be judged in the context of the population of taxpayers (up to 332,000 owner-managed companies . . . ) who are going to be affected by it.
	The report continues:
	all our witnesses from the private sector who spoke on this subject expressed the view to us that a straightforward abolition of the 0 per cent. rate would be a much simpler way of achieving essentially the same end result as will be produced by these provisions.
	It is clear from those whom the change will affect that it will be complex and disruptive, and there will almost certainly have to be another change after the review. The amendment would ease the process, making it somewhat more elegant, and less costly and difficult for people who run small companies.

Howard Flight: This saga is illustrative of some of the main problems with the Government. The original zero rate was introduced as a piece of spin to try to claim that the Government were small-business friendly. Indeed, we all remember the Paymaster General telling small businesses not to look a gift horse in the mouth. The Government failed to heed warnings given at the time by everyone, including the official Opposition, that they were distorting the tax system in favour of incorporation. Unsurprisingly, the tax loss when thousands of sole traders incorporated has turned out to be far too great, so a piece of tax complexity is required to negate thatthe Lord giveth, and He taketh away, so the gift horse has gone.
	I believe that the Paymaster General attended a recent conference for small businesses, and as the hon. Member for Twickenham (Dr. Cable) pointed out, many small businesses said that they would rather abolish the zero rate and return to a simple situation rather than being burdened with complex arrangements while the Government undo their mistake. The amendment would not solve the problem and it has tax-revenue implications. It would be far better if the Government were to be a little more brave and honest by addressing the problem of their own making more satisfactorily.

Dawn Primarolo: The hon. Members for Twickenham (Dr. Cable) and for Arundel and South Downs (Mr. Flight) advanced two sets of opposing arguments, and I shall deal first with the points made by the hon. Member for Twickenham. It is a complete fallacy that the introduction of the small companies rate makes calculations for companies more complexit does not. The scheme is extremely simple and it works through the corporate tax system. The system is straightforward for companies that start as micro-companies, reinvest in themselves and grow, because the zero rate will be left in place to assist such companies.
	I know that the hon. Gentleman would agree that small businesses promote growth and enterprise. They are part of a modern, dynamic economy that needs a strong entrepreneurial base and vibrant small businesses. The Government's policy is designed to ensure that the significant engine for future growth in the economy, which generates the competitiveness that drives innovation, is rewarded when profits are reinvested in companies.
	The fact that the amendment would change the rate to 5 per cent. suggests to me that the hon. Gentleman accepts the principle regarding companies that are driven to incorporate only to access low corporation tax rates when taking a dividend as private income rather than reinvesting in themselves. He is merely quibbling about whether the rate should be 19 per cent. or 5 per cent., but he does not address how costly his scheme would be, as the hon. Member for Arundel and South Downs pointed out, despite the fact that it would have no purpose. The measure would cost about 500 million in 200607, and there would be a substantial cost due to those who were driven to incorporate not because they wanted to reinvest profits in their companies to promote growth, but so that they could access a 5 per cent. tax rate and thus reduce their liability for tax on their incomes. That cannot be right.
	The hon. Member for Twickenham set the two benchmarks of complexity and a further change, but he contradicted himself. He would increase complexity by setting a rate of 5 per cent., for which there is no parallel in the tax system for corporates, and would also make a change, which he says that he does not want. For reasons of cost, fairness and the need to reward companies that reinvest profits in themselves to promote growth, the Government's policy is the fairest and the most straightforward option. The changes to which he referred have nothing to do with small businesses that try to invest their profits for growth. Specific aspects of the tax system needed to be addressed because some companies were trying to remove profit in other ways, and thus escape tax, which cannot be fair.
	The hon. Member for Arundel and South Downs talked about the zero rate, but his party did not vote against that proposal. It agreed with the principle that we should assist companies that reinvest their profits in themselves in order to grow. I fail to understand how removing the zero rate, yet keeping the 19 per cent. rate, would assist such small companies.

Howard Flight: With the greatest respect, I think that the Paymaster General was present when I said that several small companies have commented that they would prefer to be rid of the 19 per cent. rate, which can be complicated in some circumstances, at the price of giving up the zero rate. She knows that one rate essentially offsets the other. Secondly, when the zero rate was introduced, we said that if the Government wanted to give tax incentives to small businesses, they should not distort the tax system, but give incentives, whether companies were sole traders or incorporated.

Dawn Primarolo: I am glad that the hon. Gentleman mentioned what was said at the meeting of the all-party group on small businessthat was the occasion to which he referredbecause much mischief has been made, so I would like to put the facts on record. I am not a member of the all-party group, but the hon. Gentleman's colleague, the hon. Member for Hertford and Stortford (Mr. Prisk), is. Several professional organisations attended the meeting, including one lobbyist and two, three or perhaps four representatives of such bodies as the Institute of Chartered Accountants. The Federation of Small Businesses was also represented at the meeting. The hon. Member for Hertford and Stortford asked me, as a courtesy, to attend the meeting to hear what those bodies had to say. They did not purport to represent, or speak on behalf of, all small businesses, and they did not suggest that they wanted the zero rate to be removed. I made no comment on that at the meeting, so let us be clear that people are not lobbying for that measure.
	The amendment is an attempt to buyliterallya few friends with taxpayers' money. It would affect only a small sector of companies that would prefer not to pay the same tax as everyone else has to. I do not think that that is fair. It is complex and the Exchequer, on behalf of all taxpayers who pay their fair rate of tax, rejects it as a principle. However, I look forward to debates in future with both hon. Gentlemen about the most appropriate way for the tax system to respond to micro, small and medium-sized companies with regard to their contribution to the economy. If the amendment is put to a vote, I shall ask my right hon. and hon. Friends to oppose it.

Vincent Cable: There is an element of common ground. All three of usthe Minister, the hon. Member for Arundel and South Downs (Mr. Flight) and myselfare concerned about how best to create an environment in which entrepreneurs can flourish. One of the painful lessons of the Government's attempts at tax reform is that simply switching artificially from incorporation to unincorporation, treating them as entirely different animals, merely results in distortions of the system and does not promote entrepreneurship.
	Neither the Minister nor I are the best people to judge the issue of complexity; it is those on the receiving end who are best able to judge complexity. It is clear from the evidence that has come forward from the various representative and professional bodies that an enormous amount of complexity is involved. The Inland Revenue describes its three-step process for calculating tax liability as extremely simple. However, it is extremely complex for many people who cannot afford to employ an accountant and have to go through the process themselves. Clearly, there is a difference of interpretation of complexity in this context, but it is clear to most people who run businesses that the arrangement is extremely complex.
	As for reinvestments, it is a little simple to say that there are good and virtuous companies that reinvest their profits and others that take dividends. Until the Government started tinkering with tax arrangements in this area, where many small companies were highly entrepreneurial, some people took their income in the traditional way and paid income tax on it, and others took their income in the form of dividends. That reflected the old system. It does not mean that one company was better than another or that one was more committed to growth than the other. The argument about reinvestment and non-reinvestment is artificial.
	As for the amendment's revenue implications, it is fair to say that the Government's track record of predicting the revenue implications of tax changes have not been particularly good. They lost 1 billion as a result of the inadvertent changes from their own proposals, so to tell us that the amendment would somehow be depriving the Treasury of revenue is a little rich. The problem that the Government now face is how to extricate themselves, as sensibly as possible, from a mistaken initiative. We know that within a year or so the regime will have to change again, and we are looking for the most sensible transitional arrangement. The Government have proposed a complicated one, and ours is rather simpler.
	I do not intend to push the amendment to a vote, but it is worth reminding the Government that they created the problem. We are trying to help them to find a way out of it. I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.

Clause 29
	  
	Special rates of tax applicable to trusts

Howard Flight: I beg to move amendment No. 224, in page 23, line 40, at end insert
	'(5)   This section shall not apply to the income of a settlement in any year of assessment if the trustees of the settlement have elected that section 691(2) of the Taxes Act (certain income of maintenance funds for historic houses not to become the income of the settlor etc) shall have effect in the case of
	(a)   the settlement, or
	(b)   any part of the settlement in relation to that year of assessment'.

Madam Deputy Speaker: With this it will be convenient to discuss the following amendments:
	No. 228, in schedule 15, page 366, line 4, at end insert
	'(4)   If
	(a)   within two years of the death of the chargeable person the relevant property is transferred to a settlement, and
	(b)   a direction is given in respect of the property under the provisions of paragraph 1 of Schedule 4 to IHTA 1984 (maintenance funds for historic buildings), sub-paragraph 2(b) shall not apply to the property and the chargeable person shall be treated as the settlor of the property under the provisions of Schedule 4 to IHTA 1984.'.
	No. 229, in schedule 15 page 366, line 27, at end insert
	'(4)   If
	(a)   within two years of the death of the chargeable person the relevant property is transferred to a settlement, and
	(b)   a direction is given in respect of the property under the provisions of paragraph 1 of Schedule 4 to IHTA 1984 (maintenance funds for historic buildings), sub-paragraph 2(b) shall not apply to the property and the chargeable person shall be treated as the settlor of the property under the provisions of Schedule 4 to IHTA 1984.'.
	No. 230, in schedule 21 page 399, line 10, leave out from 'settlement' to end of line 16 and insert
	'in relation to which a direction under paragraph 1 of Schedule 4 to the Inheritance Tax Act 1984 (maintenance funds for historic buildings) has been given.'.
	No. 231, in schedule 22 page 407, line 23, leave out from 'settlement' to end of line 30 and insert
	'and a direction under paragraph 1 of Schedule 4 to the Inheritance Tax Act 1984 (maintenance funds for historic buildings) was given in relation to a relevant earlier disposal.'.

Howard Flight: These five amendments arise from discussions that we have had with the Historic Houses Association and relate to maintenance funds. Hon. Members will be aware that 20 or so years after the second world war the UK lost many historic houses. There was really an all-party agreement thereafter. First, people were required to maintain their historic houses; they could not pull them down or let them fall down. Secondly, some fiscal assistance was given to that end, which is where maintenance funds come in, to keep the houses in good repair. We are not talking about clever tax avoidance vehicles. Once houses are owned by maintenance funds, there is no way in which individuals can take them back and get up to clever tricks.
	Amendment No. 224 is designed to exclude maintenance fund income from the increased 40 per cent. income tax rate that will apply to trust income under clause 29. It is quite a significant cash flow cost to existing maintenance funds to have their tax rate effectively increased by some 20 per cent., especially when maintenance costs are rising. In 1997, the Labour Government introduced the ability to make an election under section 692 of the Income and Corporation Taxes Act 1988. If the election is in force, the income of the maintenance fund is taxed at 34 per cent. rather than 40 per cent. as the income of the settlor. In 1997, that benefit was far greater than it was before Conservative Governments reduced the ridiculously high rates of personal taxation.
	When the notes on the Finance Bill were publishedspecifically on the reforms of the taxation of trusts, and at the same time as the announcement of the proposed increase in the rate applicable to trusts to 40 per cent.the recommendations contained suggested provisions to prevent the increase in tax applying to trusts for the vulnerable but not for vulnerable historic houses. There was no reference to the position of maintenance funds.
	I submit that maintenance funds for historic houses should be similarly treated. They were set up by the Labour party to give relief from capital transfer tax for property transferred to such trusts. The proposals had all-party support, as did the introduction in 1997 of the right to elect for the income of the maintenance fund to be taxed at the rate applicable to trusts rather than the settlor's rate. The need for maintenance funds has been reduced by the introduction of inheritance tax and potentially exempt transfers in 1986, but they remain an important vehicle for the preservation of heritage. People often die earlier than they expect and historic houses can end up having to be sold and turned into flats.
	Amendments Nos. 228 and 229 are designed to prevent the inheritance tax liabilities otherwise payable by the donor on his death following an election if the donee transfers the property to a maintenance fund. This interrelates to the subsequent pre-owned assets proposals.
	Amendment No. 228 is similar in form to amendment No. 102, which we discussed in Committee. The amendment has been redrafted because the effect should be to make the election to avoid the pre-owned assets charge and then have the option of either paying the inheritance charge or having exemption by transferring to a maintenance fund. As drafted, the clause appears to enable the Revenue to reclaim the pre-claimed assets charged if the property is transferred into a maintenance fund.
	Amendment No. 229 is essentially in the same form, but relates to intangible property, the election of which is dealt with in a separate paragraph.
	The argument that the Paymaster General advanced in Committee for rejecting the principle of permitting maintenance funds to be created for property subject to a schedule 15 election was that it would be wrong to treat such property any differently from property in a potentially exempt transfer that had failed, either because the donor fails to survive seven years or because of reserved benefit. The right hon. Lady's point was that the taxpayer should not have his cake and eat it in this context.
	During consideration of the Finance Bill 1986 in Committee, the then Conservative Minister advanced a similar argument when rejecting a proposal put forward by a Labour Member to commit the owner of property subject to a failed PET to transfer it to a maintenance fund. In 1986, there was some merit in the argument that the situation to be relieved was of the taxpayer's own makinghe did not have to risk the failure of his potentially exempt transferbut a donor who is now subject to a pre-owned assets charge is not in the same position. He will almost certainly have made what the Revenue said in 1986 was not a gift with reservation, and that would remain effective if he lived for at least seven more years. He is now told that he undertook a contrived arrangement, and must pay a penalty tax to deter others. Whether he pays the tax or elects to suffer the inheritance tax charge on his death, the effect is the same for the property and the maintenance of the historic house. Far from his having his cake and eating it, he is in a no-win position. Surely, he ought to be entitled to elect to avoid the inheritance tax charge by taking a conditional exemption and maintenance fund relief. I am aware that the Revenue is in discussions with the Historic Houses Association, and if the Paymaster General is not willing to accept my amendments, I hope that she agrees that maintenance funds should be further discussed.
	Amendments Nos. 230 and 231 relate to clauses 111 and 112, which introduce anti-avoidance provisions that are also dealt with in schedules 21 and 22. Clause 111 precludes capital gains tax holder relief on transfers to settlor-interested settlements, and clause 112 precludes principal private residence relief from capital gains tax on the sale of houses that have been the subject of a previous claim for capital gains tax holder relief. Each schedule introduces an exemption for maintenance funds. In the case of schedule 21, it is clearly important that the relief should continue to apply to owners who set up a maintenance fund throughout their lifetime because it is inevitable that the settlor will have interest in the fund to maintain his house. Both reliefs are expected to apply only if an election under section 691 of the Taxes Act 1988 is in force. Under that election, the income of the maintenance fund is subject to the rate applicable to trusts, and is not taxed as the income of the settlor. The Government have just made section 691 redundant. If the rate applicable to trusts is now the same as for individuals, there will be no point in making a section 691 election.
	Capital gains tax holder relief on lifetime transfers to maintenance funds should not be dependent on the existence of an election that is now defunct, and neither should the preservation of principal private residence relief. If amendment No. 224 is rejected, the remaining amendments in the group are necessary to ensure that the reliefs for maintenance funds in schedules 21 and 22 are not dependent on a defunct election. In any event, whether or not the settlor makes a section 691 election, the rate of income tax payable by the fund trustees, and therefore the rate of capital gains tax, has no other effect on the status of the maintenance fund. The availability of capital gains tax holder relief for transfers to maintenance funds and the preservation of principal private residence relief should depend on whether or not the fund has been designated under schedule 4 of the Inheritance Tax Act 1984.
	My amendments are probing and highly technical. As I have said, if the Minister does not see fit to accept them, I hope that she will assure the House that the issues that they raise will be considered in the discussions between the Revenue and the Historic Houses Association on the wider implications of the relevant tax changes.

Dawn Primarolo: I shall not accept the amendments tabled by the hon. Member for Arundel and South Downs (Mr. Flight), and shall remind the House of the purpose of heritage maintenance funds and trusts: they are designed to maintain historic buildings and other heritage assets. There are fewer than 150 such trusts in the UK, but the Government understand and value their role in preserving the nation's historic buildings and works of art. In his amendments, the hon. Gentleman attempts to tie a beneficial structure with a narrow purpose to the pre-owned assets that we shall discuss later. He is therefore inadvertently allowing some people with access to creative tax planning to reopen their heritage maintenance funds and plan their affairs, following changes introduced by the Bill, so that they are no longer liable for inheritance tax.
	As I have said, we accept the need for heritage maintenance funds, which is why the Government continue to provide certain tax privileges for them that are not threatened in any way by the Finance Bill. The hon. Gentleman's amendments would expand those privileges. Property may be transferred into a settlement free of inheritance tax if the income from that property is used for the preservation of land, buildings or objects of artistic or historic interest. Payments made by a heritage maintenance fund and used for the maintenance of a property are not treated as the income of the person occupying that property. Heritage maintenance funds feature in a number of exclusions from capital gains tax anti-avoidance rules. The Government's position is therefore clear: we support the use of these funds for genuine heritage purposes, but we will not agree to amendments that seek to extend those privileges or allow a small number of extremely wealthy peoplethere are only 150 truststo have a vehicle to circumvent the requirement that property and works of art should be subject to inheritance tax or treated as pre-owned assets.
	The hon. Gentleman has not explained why the current structure of the heritage maintenance funds does not work or why it should be amended. He has not revealed any flaws in it or a lack of support for the maintenance of historic buildings. His amendments seek to allow greater benefits than is justified, so I shall not support them should he put them to a vote. However, he sought confirmation of something that I confirmed earlier in Committee. Yes, the Inland Revenue has discussions with the Historic Houses Association. We have similar discussions with the Department for Culture, Media and Sport about how to preserve our heritage, works of art and designated property or land while maintaining the principles and the balance of the tax system. I cannot assure the hon. Gentleman that his amendments will eventually be accepted in those discussions, but I can reassure him that the Government will continue to play an active part by engaging with all relevant bodies to ensure the continued preservation of this country's heritage. The taxpayer can play a role in that, whether through tax exemptions or specific structures. On that basis, I ask the hon. Gentleman not to press the amendment to a vote, but if he feels that he needs to do so, I would ask my hon. Friends to oppose the amendment.

Howard Flight: The Paymaster General failed to respond to the first and last of the territories that I raised. The first territory has nothing to do with the pre-owned assets charge, and simply concerns the rise in the tax charge on maintenance funds from 34 to 40 per cent. The full programme of Government changes to the taxation of trusts makes sense in that a full look through will occur, and taxation will fall to the tax rate of the beneficiary, which seems to be a sensible approach. However, that approach is not relevant to increases to the tax rate on maintenance funds. It is inconsistent for the Government to leave the tax charge on vehicles for the vulnerable at 34 per cent., while increasing the tax charge on vehicles for looking after properties. Although buildings are not as important as individuals, it seems unreasonable not to consider that point.

Dawn Primarolo: The hon. Gentleman misses the point. The income and gains arising in respect of the property and heritage maintenance fund will be taxed either at the marginal tax rate of the person who settled the property into the trust or the trust-applicable rate. The basic rate taxpayer will pay tax at the basic rate, and the higher rate taxpayer will pay tax at the higher rate, which is perfectly reasonable. The hon. Gentleman is asking for the higher rate taxpayer to pay at a lower rate and for the basic rate taxpayer to pay at the basic rate, which cannot be fair.

Howard Flight: The Paymaster General misses the point that those vehicles are not tax wraps from which individuals benefit, because the money goes into the maintenance of a property rather than into an individual's pocket. The point of maintenance funds is to allow people both to own and to look after an historic property. The situation is not analogous to a trust where an individual is the beneficiary and draws the income for their personal benefit.
	The second territory is the technical point that the section 691 election becomes redundant as a result of the changes to the taxation of trusts, and it seems to me that it is technically rather inappropriate to have exemptions continuing that are dependent on tax issues that have gone away.
	The Paymaster General does not understand this point as I understand it, but if she were involved in the wretched business of maintaining an historic housenot that I own oneperhaps she would. People structure their affairs in various different ways in order to ensure that their properties are looked after and handed on to the next generation to look after. Those arrangements are not about pulling a fast one on the Revenue, and essentially concern the maintenance of historic houses.
	Those who were unwise enough to believe what the Inland Revenue told them and the implication of the Government's actions, which we shall debate shortly, and who chose to structure their arrangements in order to fall into the category that the Government are now attacking with their retrospective pre-owned assets tax, will not have enough money to pay for their properties, which will have to be disposed of. If that is what the Government want, then that is fine.
	The issue concerns worthwhile buildings rather than people, and a fairer tax system would provide a transition relief to allow people to choose to alienate themselves from their property, which they could put into a maintenance fund with money to look after it. People might have done that in the past, if they had known that the rules would change retrospectively. The situation does not concern people having their cake and eating it, and one must examine who benefits from the individuals involved, who are not individual beneficiaries, alienating the assets.
	I tabled the amendments as probing amendments, and in the hope that reasonable people in the Revenue would think about them further. I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.

Clause 30
	  
	Provision not at arm's length: transactions between UK taxpayers etc.

Amendment made: No. 71, in page 24, line 10, at end insert
	'; and
	(c)   at the end of the paragraph insert
	(7)   In determining for the purposes of sub-paragraph (1) above the amount that would be taken for tax purposes to be the amount of the profits or losses for a year of assessment in the case of a person who is not resident in the United Kingdom, there shall be left out of account any income of that person which is
	(a)   excluded income for the purposes of section 128 of the Finance Act 1995 (limit on income chargeable on non-residents: income tax), or
	(b)   income to which section 151 of the Finance Act 2003 applies (non-resident companies: extent of charge to income tax)..'.[Dawn Primarolo.]

Clause 44
	  
	Insurance companies: transitional provisions

Amendments made: No. 72, in page 53, line 23, at end insert '(a), (c) or (ca),'.
	No. 73, in page 53, line 32, after '76(1)(aa)', insert ', (a), (c) or (ca)'.[Dawn Primarolo.]

Schedule 8
	  
	Loan relationships: miscellaneous amendments

Amendments made: No. 74, in page 303, line 26, leave out 'Schedule' and insert 'Chapter'.
	No. 75, in page 303, line 38, leave out 'Schedule' and insert 'Chapter'.[Dawn Primarolo.]

Schedule 10
	  
	Amendment of enactments that operate by reference to accounting practice

Amendments made: No. 76, in page 308, line 40, after 'debit' insert
	'(in the case of an asset) or credit (in the case of a liability)'.
	No. 77, in page 308, line 42, after 'credit' insert
	'(in the case of an asset) or debit (in the case of a liability)'.
	No. 78, in page 309, line 6, after 'credit' insert
	'(in the case of an asset) or debit (in the case of a liability)'.
	No. 79, in page 309, line 8, after 'debit' insert
	'(in the case of an asset) or credit (in the case of a liability)'.
	No. 80, in page 310, line 4, leave out paragraph 10 and insert
	   '10   Omit section 92A of that Act (convertible securities etc: debtor relationships).'.
	No. 81, in page 311, line 11, after 'instruments' insert 'or equity instruments'.
	No. 82, in page 322, line 1, leave out from beginning to 'derive' in line 10 and insert
	'Power to make further provision by regulations
	17C   (1)  The Treasury may by regulations make provision
	(a)   excluding amounts of a prescribed description from paragraph 17B(1);
	(b)   requiring amounts of a prescribed description that do not fall within paragraph 17B(1) (by virtue of regulations under paragraph (a) above or otherwise) to be brought into account in determining a company's profit or loss for a period in prescribed circumstances;
	(c)   as to the manner in which any such amounts are to be brought into account.
	(2)   The regulations may (in particular) make provision by reference to the fact that amounts'.
	No. 83, in page 322, line 16, leave out from beginning to end of line 18 and insert
	'( )   Regulations under this paragraph may apply, exclude or modify any of the provisions of this Schedule in relation to cases for which provision is made by the regulations..'.
	No. 84, in page 329, line 24, leave out paragraphs 77 and 78 and insert
	'77   For sections 92 to 94AB of the Finance Act 1993 (c. 34) (corporation tax: currency) substitute
	Corporation tax: currency
	92   The basic rule: sterling to be used
	(1)   For the purposes of corporation tax the profits of a company for an accounting period must be computed and expressed in sterling.
	(2)   The following sections contain further provision as to the application of subsection (1) to certain profits or losses falling to be computed in accordance with generally accepted accounting practice
	section 92A (company operating in sterling and preparing accounts in another currency);
	section 92B (company operating in currency other than sterling and preparing accounts in another currency);
	section 92C (company preparing accounts in currency other than sterling). 92A   Company operating in sterling and preparing accounts in another currency (1)   This section applies if, for a period of account, in accordance with generally accepted accounting practice, a company resident in the United Kingdom
	(a)   prepares its accounts in a currency other than sterling, and
	(b)   in those accounts identifies sterling as its functional currency.
	(2)   Profits or losses of the company for the period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes must be computed in sterling as if the company prepared its accounts in sterling. 92B   Company operating in currency other than sterling and preparing accounts in another currency
	(1)   This section applies if, for a period of account, in accordance with generally accepted accounting practice
	(a)   a company resident in the United Kingdom prepares its accounts in one currency,
	(b)   in those accounts it identifies another currency as its functional currency, and
	(c)   that currency is not sterling.
	(2)   Profits or losses of the company for the period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes must be computed in sterling by
	(a)   computing those profits or losses in the functional currency as if the company prepared its accounts in that currency, and
	(b)   taking the sterling equivalent of those profits or losses.
	(3)   Where this section applies, it shall be assumed that any sterling amount mentioned in the Corporation Tax Acts is its equivalent expressed in the functional currency of the company. 92C   Company preparing accounts in currency other than sterling
	(1)   This section applies in relation to a company resident in the United Kingdom if, for a period of account
	(a)   the company prepares its accounts in a currency other than sterling (the accounts currency), and
	(b)   neither section 92A nor section 92B applies.
	(2)   This section also applies in relation to a company that is not resident in the United Kingdom if, for a period of account, the company prepares its return of accounts in a currency other than sterling (the accounts currency).
	(3)   Profits or losses of the company for the period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes must be computed in sterling by
	(a)   computing those profits or losses in the accounts currency, and
	(b)   taking the sterling equivalent of those profits or losses.
	(4)   Where this section applies, it shall be assumed that any sterling amount mentioned in the Corporation Tax Acts is its equivalent expressed in the accounts currency of the company. 92D   Translating amounts into equivalent in different currency
	(1)   Where, for the purposes of computing the profits or losses of a company for an accounting period, an amount is required by section 92B or 92C to be translated
	(a)   into its sterling equivalent, or
	(b)   into its equivalent expressed in the functional currency or the accounts currency of the company, the translation must be made by reference to the appropriate exchange rate.
	(2)   The appropriate exchange rate is
	(a)   the average exchange rate for the current accounting period, or
	(b)   an appropriate spot rate of exchange for the transaction in question. 92E   Meaning of accounts, return of accounts and functional currency
	(1)   References in sections 92A to 92C to the accounts of a company resident in the United Kingdom are to
	(a)   the annual accounts of the company required by Part 7 of the Companies Act 1985 or Part 8 of the Companies (Northern Ireland) Order 1986; or
	(b)   if the company is not required to prepare such accounts, the accounts which it is required to keep under the law of the country or territory under whose laws the company is incorporated; or
	(c)   if the company is not so required to keep accounts, such of its accounts as most closely correspond to accounts which it would have been required to prepare if the provisions of Part 7 of the Companies Act 1985 applied to it.
	(2)   The reference in section 92C to the return of accounts of a company not resident in the United Kingdom is to a return of such accounts of its permanent establishment in the United Kingdom as may be required by the Inland Revenue under paragraph 3 of Schedule 18 to the Finance Act 1998 (company tax returns).
	(3)   References in sections 92A, 92B and 92D to a company's functional currency are to the currency of the primary economic environment in which the company operates.. Consequential amendments 78   (1)   Section 730BB of the Taxes Act 1988 (exchange gains and losses on sale and repurchase of securities) is amended as follows.
	(2)   In subsection (2)(c) for the words from section 93 of the Finance Act 1993 to sterling) substitute section 92B or 92C of the Finance Act 1993 (company preparing accounts or operating in currency other than sterling).
	(3)   In subsection (3)
	(a)   in paragraph (a) for section 93 of the Finance Act 1993 substitute section 92B or 92C of the Finance Act 1993 (company preparing accounts or operating in currency other than sterling);
	(b)   in paragraph (b) for the words from relevant foreign currency to the company substitute relevant currency.
	(c)   in paragraph (c)(i) and (ii) for relevant foreign currency substitute relevant currency.
	(4)   After subsection (3) insert
	(3A)   In subsection (3), references to the relevant currency are
	(a)   in cases in which section 92B of the Finance Act 1993 applies, to the functional currency (within the meaning of that section), and
	(b)   in cases in which section 92C of the Finance Act 1993 applies, to the accounts currency (within the meaning of that section).
	(5)   Omit subsection (12).'[Dawn Primarolo.]

Schedule 11
	  
	Conditions for registration for gross payment

Amendments made: No. 85, in page 333, line 42, leave out
	'periods ending at a time within that period when'
	and insert
	'the period or periods within the qualifying period during which'.
	No. 86, in page 334, line 20, leave out 'ending'.
	No. 87, in page 334, line 37, leave out
	'ending after the end of'
	and insert 'after'.
	No. 88, in page 336, line 23, leave out
	'ending after the end of'
	and insert 'after'.
	No. 89, in page 339, line 2, leave out
	'ending after the end of'
	and insert 'after'.[Dawn Primarolo.]

Clause 67
	  
	Registration for gross payment: appeals

Amendment made: No. 90, in page 70, line 7, leave out 'High Court' and insert
	'appropriate court.
	(6)   In this section the appropriate court means
	(a)   in relation to England and Wales, the High Court;
	(b)   in relation to Scotland, the Court of Session, as the Court of Exchequer in Scotland;
	(c)   in relation to Northern Ireland, the Court of Appeal in Northern Ireland.'.[Dawn Primarolo.]

Schedule 15
	  
	Charge to income tax on benefits received by former owner of property

Howard Flight: I beg to move amendment No. 1, in page 356, line 20, at beginning insert
	'Subject to sub-paragraph (6) below,'.

Madam Deputy Speaker: With this it will be convenient to discuss the following:
	Amendment No. 2, in page 356, line 26, leave out '17th March 1986' and insert '19th June 2003'.
	Amendment No. 45, in page 356, line 26, leave out '17th March 1986' and insert '9th December 2003'.
	Amendment No. 3, in page 356, line 35, leave out '17th March 1986' and insert '19th June 2003'.
	Amendment No. 46, in page 356, line 35, leave out '17th March 1986' and insert '9th December 2003'.
	Amendment No. 4, in page 356, line 48, at end insert
	'(6)   This paragraph will not apply where the chargeable person occupies the relevant land pursuant to a right or interest granted or acquired at least seven years before the earliest date on which the disposal condition or the contribution condition was met.'.
	Amendment No. 5, in page 358, line 36, leave out '17th March 1986' and insert '19th June 2003'.
	Amendment No. 47, in page 358, line 36, leave out '17th March 1986' and insert '9th December 2003'.
	Amendment No. 6, in page 358, line 44, leave out '17th March 1986' and insert '19th June 2003'.
	Amendment No. 48, in page 358, line 44, leave out '17th March 1986' and insert '9th December 2003'.
	Amendment No. 7, in page 360, line 17, at beginning insert
	'Subject to sub-paragraph (4) below,'.
	Amendment No. 8, in page 360, line 30, leave out '17th March 1986' and insert '19th June 2003'.
	Amendment No. 49, in page 360, line 30, leave out '17th March 1986' and insert '9th December 2003'.
	Amendment No. 9, in page 360, line 34, at end insert
	'(4)   This paragraph shall not apply where
	(a)   the chargeable person has a reversionary interest in the settlement (as defined by section 47 Inheritance Tax Act 1984); or
	(b)   the chargeable person's interest in the settlement arises only on the termination of the settlement; or
	(c)   in the case of a settlement where there is no subsisting interest in possession, the chargeable person is not currently a member of the class of beneficiaries of the settlement; and
	(d)   where the chargeable person has no other interest in the settlement.'.
	Amendment No. 225, in page 360, line 40, leave out
	'of any income tax or capital gains tax'
	and insert
	'on which any income tax or capital gains tax is'.
	Amendment No. 10, in page 361, line 36, at end insert
	'(f)   it is a sale of an interest in land or an undivided share of an interest in land for full consideration in money or money's worth.'.
	Amendment No. 226, in page 361, line 48, leave out from 'and' to the end of line 2 on page 362 and insert
	'the gift and the acquisition referred to in the said paragraphs were not associated operations as defined by section 268 of IHTA 1984,'.
	Government amendment No. 91.
	Amendment No. 227, in page 362, line 44, leave out 'and' and insert 'or'.
	Government amendments Nos. 92 and 93.
	Amendment No. 44, in page 363, line 45, leave out '5,000' and insert '50,000'.
	Government amendments Nos. 94 to 108.
	Amendment No. 11, in page 366, line 41, at end insert
	'24   (1)   This paragraph applies where
	(a)   the provisions of paragraph 3 (land), paragraph 6 (chattels) or paragraph 8 (intangible property) apply to a person during the year of assessment 200405 (the current year) by reference to any property (the relevant property); and
	(b)   the relevant property is transferred absolutely to the chargeable person during the current year or during the year of assessment 200506 either directly or by associated operations (as defined by section 268 of the Inheritance Tax Act 1984).
	(2)   Where this paragraph applies, no operation by which the relevant property is so transferred shall
	(a)   be a disposition or transfer of value for the purposes of the Inheritance Tax Act 1984,
	(b)   be subject to Inheritance Tax under section 65(1) of the Inheritance Tax Act 1984,
	(c)   be a disposal for the purposes of paragraphs 3 and 6 above,
	(d)   be subject to Stamp Duty Land Tax; and
	(e)   the receipt of the relevant property by the chargeable person shall not be subject to Income Tax.
	(3)   If any operation by which the property is so transferred constitutes a disposal for the purposes of the Taxation of Chargeable Gains Act 1992, the person making the disposal and the person acquiring the property shall be treated as if the asset was acquired from the person making the disposal for a consideration of such amount as would secure that on the disposal neither a gain nor a loss would accrue to the person making the disposal.'.

Howard Flight: The Government's pre-owned assets measures, which are embodied in clause 84 and schedule 15, have elicited more complaint from constitutional lawyers and others than anything else in the Bill. I have been deluged with letters, e-mails and other communications from eminent lawyers, a group of whom are considering taking the matter to the European Court of Justice. Those complaints are made with good reason. What the Government saw as a clever manoeuvre raises major issues of principle in relation not only to the basis of taxation, but to the rule of law; and all sorts of unfairnesses were not fully remedied by the amendments that were passed in Committee. I accept that the Government have addressed some of the worst effectsunintended, I trustof the measures, but there is still a lot to be considered.
	One aspect of the provision that has given rise to objections is its application to individuals whom the Inland Revenue has previously accepted as being outside the gifts with reservation rules. Its alleged intent is to recoup the tax and punish people who had avoided the gifts with reservation rules. It also applies to some individuals who fall within statutory gifts with reservation exemptions, which were introduced by this Government.
	However, the main objection to the provision is that it is retrospective in principle, even if cleverly designed to be retroactive in method. It undermines the traditions of British tax law because the legitimate and reasonable expectations of taxpayers have been denied. It is clearly a piece of inheritance tax legislation in substance, if not in form. The Government's previous policies on inheritance tax cannot be ignored, and must be examined in relation to these proposals.

Rob Marris: Will the hon. Gentleman explain how his intellectual proposition differs from what his party did in government when they tapered off, then completely abolished, mortgage interest relief? When we took out our mortgage in 1984, we got mortgage interest reliefthat was the reasonable expectation, to use the hon. Gentleman's words. When that was done away with, I happened to support it, but one could have advanced the same argument about retrospectivity in that case.

Howard Flight: I ask the hon. Gentleman, whose contributions I greatly respect, to be patient, as I was about to go on to explain just that point. As he is well aware, the issue was raised in Committee.
	Amendments Nos. 2, 3, 5, 6 and 8 would restrict the starting date of the measure to 19 June 2003, as that was the date on which the Government last amended the gifts with reservation rules. They gave no indication that those changes should have retrospective effect. Correspondingly, and perfectly reasonably, any taxpayer who had undertaken planning under previous versions of the gifts with reservation rules would have been led to understand that their planning had achieved its objectives. Indeed, in summer 2000, Mr. Peter Twiddy of the Inland Revenue capital taxes office specifically confirmed to the Society of Trust and Estate Practitioners that that was the case. That differs greatly from what Governments do in relation to various tax reliefs, whether to mortgages or pension savings. Individuals who had completed their planning would have acted accordingly. Many took out life policies on a seven-year-term basis to cover the tax liability were they to die within seven years of their gift, but they could have reduced their whole of life cover. They would not have organised their financial affairs on the basis that they would need to pay a rent to live in their own homes.
	If the Government had wished to introduce a new income tax in relation to occupation, it would not, much as one might have generally objected to it, have been seen as retrospective. The issue here is that the provision is concerned in substance with inheritance tax and that it is narrow and penal.

Rob Marris: As the hon. Gentleman knows, I served on the Standing Committee that considered the Bill. My recollectionhe will correct me if I am wrongis that under these provisions the taxpayer is put to an election as to whether they go into the new regime or, so to speak, have the house back and do not pay a rent or quasi-income tax on it. The taxpayer is not forced into one position or the other, but has a choice.

Howard Flight: Again, the hon. Gentleman anticipates me, because one of my subsequent points deals with what would be a fair transitional relief. The whole principle underlying British law in this territory is that in such circumstances transitional relief is fair; for reasons that I will deal with later, in this case it is not fair.

John Burnett: Does the hon. Gentleman agree that the choice is not as simple as that, but is more like Hobson's choice in certain circumstances? For example, to avoid French inheritance tax laws, shares may be owned by a company that owns property in France. In those circumstances, the shares might attract relief but the property does not. That has most unfortunate consequences.

Howard Flight: I thank the hon. Gentleman for his intervention; again, I will come to that in due course.
	Amendments Nos. 9 and 7 would exclude from a pre-owned assets charge those interests in trusts that have never been treated as gifts with reservation, or may not be gifts with reservation depending on the facts. Where the settlor has settled property in a trust for a limited period after which the property reverts to him, the inheritance rules have always included a settlor's future righthis reversionary interestas part of his estate, valuing it on an actuarial basis. That is, if the settlor recovers the property in a month's time, his interest is more valuable than if he recovers it in 25 years' time; that is perfectly rational. As a result, the gifts with reservation rules have never needed to apply.
	Under the pre-owned asset rules, however, the settlor effectively gets a credit for the value of the reversionary interest, but is nevertheless subject to income tax on the property in the trust, notwithstanding that he cannot benefit for another 25 years. Surely that is perverse.

Rob Marris: I venture to the hon. Gentleman that he is confusing a gift with a reservation of benefita concept that was introduced by his Government in the late 1980swith a reversionary interest of a settlor. Those are two separate things, but he is eliding them.

Howard Flight: Gifts with reservation of whatever kind have all been subject to the existing rules. The application of inheritance tax in relation to all the different situations involving gifts with reservation is covered by one territory. The hon. Gentleman says that these provisions date from when the Conservatives were in power, but I do not see why that makes much difference.

John Burnett: I fail to perceive the relevance of the previous intervention. My understanding is that gifts of reversionary interest do not attract inheritance tax.

Howard Flight: That is precisely the pointwe are considering something that previously did not attract inheritance tax. I look forward to an engaging debate between the hon. Member for Torridge and West Devon (Mr. Burnett) and the hon. Member for Wolverhampton, South-West (Rob Marris) on the subject.
	When a settlement is badly drafted, the settlor frequently retains no interest in it while it subsists. However, if it comes to an end and there are no living beneficiaries, the settled assets revert to the settlor by operation of law, by way of what is known as a resulting trust. In all likelihood, the settlor will never benefit from the settled assets but the possibility of benefits means that section 660A of the Taxes Act 1988 applies. If it is accepted that such circumstances do not constitute gifts with reservation, the amendment would ensure that such arrangements escaped the pre-owned assets charge.
	It could be argued that a person who is not a beneficiary of a discretionary settlement but can be added as a beneficiary does not reserve a benefit in the settled property for gifts with reservation purposes, notwithstanding that section 660A would apply. Again, the amendment would keep settlors who are not currently beneficiaries out of a pre-owned assets charge. Of course, they would be covered by the charge if and when they were added as beneficiaries.
	Amendment No. 10 would tackle the most ridiculous aspect of the pre-owned assets rules: that sales of part interest in property for full consideration are caught by the rules. If a child moves in with a parent, who gives the child half a share in the property, there is currently no pre-owned assets charge. However, if the child pays full consideration for the half share, there is such a charge. The Paymaster General suggested that she was worried about opening the door to possible avoidance but it appears that she is far more concerned about the possibility of catching innocent parties. She has failed to identify the mischief that she claims she intends to counter.
	As matters stand, the arrangements have a serious impact on equity release schemes, which are a growing source of revenue for the elderly in the light of the disastrous effect of the Government's policies on pensions saving. The Paymaster General promised to come back to me about that matter, which I raised in Committee, but the Government have tabled no amendment to paragraph 10(1)(a). That means that someone who has an equity release scheme either with a member of the family or a commercial provider will be caught by income tax. That is ridiculous. I have been told confidentially that the Government's view is that not many people have yet prepared equity release schemes and therefore the schemes do not matter. However, many more, in ignorance of the extraordinary tax trap, will take them up. Even if the numbers are not great, new laws should be fair and reasonable.
	The problem is that the pre-owned assets legislation merely requires a disposal, not necessarily a gift, and occupation of the property. The paragraph 10 exemption lets people off pre-owned asset income tax only if there is a sale of their entire interest in the property, except for any right expressly reserved over it. That would not cover sales of, for example, a half share in the freehold, which is part of the typical equity release scheme contract.
	The reference to non-exempt sales that was made in Committee does not deal with the problem because a sale of the entire interest in the land is required and we are referring to sales below value. The contrary aspect is that someone who had arranged to retain a lease and sell the freehold, subject to that lease, for full consideration, would not be affected by the pre-owned assets charge. The result would be essentially the same but via a different legal route. By contrast, selling half the unencumbered freehold in the propertya more typical transaction for the ordinary elderly citizenis not covered.
	In the past, the Financial Times has discussed equity release schemes and the pros and cons in some detail. The Government have supported measures to get equity release schemes satisfactorily regulated by the Financial Services Authority. They are a growing fact of life today. However, many people who have done equity release schemes will not realise that there is an income tax, pre-owned assets charge in those circumstances.
	Amendment No. 11 deals with the transition that the hon. Member for Wolverhampton, South-West raised. It would allow arrangements for those who are caught by the pre-owned assets rules to be unwound without incurring any tax charges and with any potential capital gains in the assets intact. That means that there would be no capital gains tax disadvantage in the process and that the basis of unwinding would be fair.
	The Government's current policy of expecting people who are caught by the new rules to elect into a gifts with reservation charge is penal because the property would be back in the estate for inheritance tax purposes but would continue to belong to the donee. There is therefore an element of double inheritance taxation. As I argued at great length in Committee, there would be no capital gains tax uplift for the asset on death. Historically, only the ignorant or badly advised got into gifts with reservation positions. The amendment would introduce fairness into the transitional arrangements by giving people a genuine opportunity to unwind the clock. The Paymaster General complained that only those who wanted to effect new planning would want to do that, but that is unreasonable. People who have to unwind their arrangements will be reluctant to embark on new planning, unless it is specifically endorsed as acceptable. Indeed, that is the Government's intention with the pre-owned assets charge penalty.
	I come now to amendment No. 225. As drafted, the schedule charges tax on the notional annual value after deducting the tax already paid. Surely the deduction should be based on the value on which the tax is paid so that there is no double charge to tax. In other words, 40 per cent. of 100 per cent. net of tax already paid produces a tax charge of 64 per cent., not the intended 40 per cent.
	Amendment No. 226 relates to paragraph 2(b) of schedule 6 of the Inheritance Tax Act 1984, which provides that the reserved gift-tracing provisions do not apply to a gift that is a sum of money in sterling or another currency. That provision follows the former estate duty tracing provisions in section 38 of the Finance Act 1957. The purchase of a property from a benefit may be reserved with a cash gift, which is chargeable only if the purchase and the gift can be regarded as associated operations.
	The problem of tracing cash gifts was discussed in Committee but the pre-owned assets charge should not be used to rewrite schedule 20 of the Finance Act 1986. A gift of cash that is unconnected with a subsequent purchase by a donor from which the donee may benefit is not and never has been a gift with reservation.
	I want to consider problems with the interpretation of section 102C(3) of the Finance Act 1986. It deals with disposals of land after March 1999 and states that there is no reservation of benefit when a donor reverts to occupation due to unforeseen hardship. Paragraph 6 to schedule 20 of the 1986 Act deals with all disposals since March 1986, and states that there is no reservation of benefit where the donor occupies land or chattels for full consideration or reoccupies land due to hardship.
	Paragraph 11(3)(d) to schedule 15 states that the provisions
	would fall to be so treated but for section 102C(3) of, and paragraph 6 of Schedule 20 to, the 1986 Act.
	The intention is to ensure that, in those circumstances, there is also no income tax charge, but there has been confusion about the use of the word and in the above sentence. The effect of the word and, inserted by amendment No. 141, appears to require both the reliefs covered to apply together to avoid the income tax charge, which most legal specialists believe is not the Government's intention. Does this mean that the conditions of section 102C(3) and paragraph 6 have to be satisfied? If so, the relief from income tax is confusing because it would apply in extremely limited circumstances. Or does it mean that if either section 102C(3) or any of the paragraph 6 conditions are satisfied, there is no income tax charge? This is an important point, because people frequently make gifts of chattels or land, and pay a full market value for their use and occupation, and they need to know whether they are in the income tax charge or not.

Rob Marris: Will the hon. Gentleman remind me from whose brief he is reading?

Howard Flight: The hon. Gentleman will pleased to know that it is from an eminent tax counsel.
	The Inland Revenue has confirmed that section 102C(3) covers circumstances not covered by paragraph 6, and that the and should therefore be read disjunctively, so that it covers the two distinct cases. I would therefore ask the Paymaster General to confirm that what was previously paragraph 11(1)(d) and is now paragraph 11(3)(d), which states
	would fall to be so treated but for section 102C(3) of, and paragraph 6 of Schedule 20 to, the 1986 Act
	refers to two distinct cases, with the effect that the and in the sentence should be read disjunctively?
	There also seems to be an omission, because the provision does not cover gifts of land made post-1999, which might be caught only by section 102A or 102B, but where the donor pays full consideration for his occupation of gifts of a share in land. This point has been raised with the Revenue. I trust that the Paymaster General will be aware of these somewhat exotic legal points. More seriously, they illustrate the mistake of not thinking through all the implications of these provisions in such complicated tax areas.

Dawn Primarolo: I would not describe them as exotic legal points. I would describe them as probing the limits of possible future ways of getting round the legislation.

Howard Flight: I am afraid that the Paymaster General's slant on that is incorrect. The law needs to be clear, and many aspects of the Bill are not clear. It is the duty of the Paymaster General to ensure that the law is clear.
	The reaction of the lawyers to Government amendment No. 91 is that it is another case of a lack of clarity. Is the intent that if a property falls within paragraph 11(3)(b), there will be no pre-owned assets charge to be adjusted under 11(3)(a), even though the amendment does not appear to affect amendment No. 227?
	There are other more straightforward areas of the Bill that have yet to be sorted out fairly. I understand that the Revenue is talking to the Historic Houses Association about the issue of historic chattels that belong to a property, and that it now understands the issue and is considering addressing it in its continuing consultations. It seems simple to me that, when chattels are settled and on public view for the normal number of days required for them not to be exempt, and when there is a heritage connection with the building, it would be foolish not to exempt them. They would simply be stored in a barn where no one would be able to see them and they would come to no good, or they would be sold. There would be no benefit to anyone.
	It is still not clear whether a full repairing lease at fair market rent would be acceptable

Madam Deputy Speaker: Order. Will the hon. Gentleman help the Chair and other Members by telling us to which amendment he is speaking?

Howard Flight: In truth, I do not think that I can. These points relate to all the amendments to schedule 15, which still await clarification. I am about to conclude, but I was giving examples of areas that still need to be tidied up. A lot of problems and unfairnesses need to be addressed. I understand that the Government and the Inland Revenue intend to address these and other issues that have not yet been resolved, either through guidance notes or, if necessary, through legislative changes to schedule 15, before the Bill passes into law.
	This whole area is regarded too lightly by the Government on the ground that it apparently affects only a small number of people. Important issues of principle in relation to retrospection are involved, and important issues of practice in relation to fair transition arrangements and to other areas not intended to be caught by the changes being thus caught.

John Burnett: I hope that the House will understand that this part of the Bill is causing widespread disquiet, and that, far from affecting only a few people, it could affect many millions of people in this country. I shall return to that point later. I hope that you will allow those of us who catch your eye, Madam Deputy Speaker, to range fairly widely on this matter. It is complex, and it is therefore difficult to be confined purely to the amendments before us.
	We support the Conservative amendments and the comments that have been made about the retrospective element of these provisions, which we believe is grossly unfair. It does not enable people to change and modify their personal affairs in time to meet what are effectively very punitive arrangements, as the hon. Member for Arundel and South Downs (Mr. Flight) has said. He referred particularly to the element of taxation on net rather than gross figures.
	It is a grave mistake to deal with actual as well as perceived inheritance tax defects by using income tax. The reason for that is pretty clear: it is ludicrous to have a nil rate band of inheritance tax of 250,000 and an income tax charge to overcome inheritance tax avoidance on pre-owned assets with a capital value of about 100,000. The Government increased the de minimis limit from 2,500 per annum to 5,000 per annum, but that is still too low. The Government seem to believe that a multiple of 20 is about the right amount, which would mean that we are talking about capital assets worth about 100,000 yielding 5,000.
	I want to make a couple of mundane points that will nevertheless be important to practitioners. Will the Paymaster General confirm whether the 5,000 per annum de minimis limit operates with a slab effect, as with stamp duty? If the 5,000 per annum de minimis limit is exceeded, does the whole sum come into taxation? In addition, will she let the House know whether it is possible to add to that 5,000 per annum de minimis limit the annual exemption and any other exemption, such as the exemption on gifts to children on marriage?

Dawn Primarolo: This is a complex area. With regard to the 5,000, the hon. Gentleman asked whether it had a slab effect. I would call it a cliff-edge effect: essentially, if the value is 5,001, taxation would be paid on the whole 5,001, not just on the 1 excess. On the issue of gifts for children, I will answer when I reply to all the amendments, as some amendments deal with that issue.

John Burnett: I am grateful to the Paymaster General. I think that she is saying that it has the cliff-hanger effect[Hon. Members: Cliff edge.] I am grateful. We call it the slab effect with stamp duty, and it is the cliff-edge effect with inheritance tax.
	What horrifies me about this tax is that it criminalises the innocent. I referred to that in Committee, and I cannot understand why the Government are not sympathetic. The prices of property in this country are high, and it is prosperous

Dawn Primarolo: I understand that the hon. Gentleman feels strongly about this issue, but the proposed arrangements do not criminalise anyone. There are something like 32,000 IHT estates each year: five out of every 100 deaths. When people seek to avoid paying their tax, the arrangements make provision to bring it back in. While not wishing him to reduce the passion that he feels for this subject, I ask him not to mislead anyone: there is no criminality, and no criminal offence, in those proceedings.

John Burnett: I acknowledge that what the Paymaster General says is right: it would be criminal only if the taxpayer, who was held to have to pay tax, refused to do so. That would present possible criminal liability. Perhaps the language that I have used is slightly exaggerated. What I am saying is that the proposals will bring into account for taxation a number of people who had absolutely no idea whatever that the arrangements that they had innocently made brought them to account for an income tax charge. That is not criminal.

Dawn Primarolo: I must press the hon. Gentleman on this point, because anyone listening to this debate will be entirely misled. There is not a criminal offence under those proposals. Evasion is a criminal offence that can be prosecuted, but those offences under the tax law are dealt with as civil offences. What is being proposed, however, is that people are not allowed to avoid the tax in the first place, and all good, fair taxpayers comply with that anyway.

John Burnett: I think that I made it quite clear that what the Paymaster General said in her first intervention on me was correct, and that perhaps I was using slightly exaggerated language. My point is that individuals will innocently be brought to account for income tax without the slightest inkling that the arrangements that they were making would involve any charge to taxation whatever. If she will allow me, I shall elaborate further on that point.
	This is not criminal liabilityit could be if the tax was not paid, if a court order to pay the tax was made, and if, thereafter, it was not paid. Conceivably, that could be criminal liability. I shall give the example of a mother and her carer daughter. The daughter forsakes the opportunity to get on the housing ladder and moves in with her mother, who says to her daughter, who might be married or unmarried, This house will be yours when I die. The daughter spends a considerable amount of money improving the property, and I know from my constituency experience that there are many such families. I reckon that there are many such families throughout the country. There are hundreds of thousands or perhaps even millions of people in those circumstances.
	The mother and daughteror people in any other relationshipdo not realise that at that stage, or as the money is spent, the daughter has acquired an equitable interest in the property. The daughter owns some of the property. [Interruption.] Before the hon. Member for Wolverhampton, South-West (Rob Marris) intervenes, I will tell him that the gifts with reservation provisions would not bite in those circumstances, because owners of equitable interests would be entitled to enjoy property equally, disregarding the shares that they had, and they would not be caught with a reservation of benefit charge.
	As I said, the mother and daughter do not realise that the daughter has an equitable interest in the property. They have received no professional advice, because, of course, they did not know that there was any possible income tax charge that could have been accruing for years after those arrangements had been made. The mother dies, and this charge then falls into account. That is outrageous, and grossly unfair. The least that the Government could do, given the high prices of real estate and high rents, is to increase substantially the de minimis limit.

Dawn Primarolo: We covered that point in Committee with regard to cases in which the carer moves into the home of the person receiving care, and in relation to the more unusual cases in which somebody moves into a house that they used to own to care for somebody, with the result that they end up with such an interest. He knows that that interest will not be enjoyed for no consideration, and that the schedule 15 charge is most unlikely to arise. We went through that in Committee, with examples, and I implore the hon. Gentleman, while he wishes to discuss this clause, not to raise issues that he knows are settled, and that will not arise under the arrangements provided for. He could be frightening people totally and utterly unnecessarily.

John Burnett: I am grateful to the Paymaster General for saying that, but she chose her words carefully: she said that the charge is most unlikely to arise. It should not arise at all. I have been to meetings with professional bodies to discuss this matter, and I have asked the question that I have posed to the Paymaster General. At those meetings were some of the most eminent tax lawyers and tax accountants in the country. They could not give me a definitive ruling one way or another. It is absolutely wrong and outrageous that those people should be in any jeopardy whatever. It should be made entirely clear in the Bill that there is no jeopardy.

Dawn Primarolo: I am grateful to the hon. Gentleman for giving way again, but I have given him this explanation and assurance both as a Minister and on the advice from the Inland Revenue. He seeks to counter-pose advice that he has from some tax experts. I say to him again: that may be their view, but it does not make it right. People listening to these proceedings would get the wrong impression, and many could be frightened by the suggestion that something is going to happen to them when it is not.

John Burnett: I repeat the Paymaster General's words. She told the House a moment ago that the charge is most unlikely to arise. It should not arise, and that should be absolutely clear.

John Gummer: Is not the hon. Gentleman right not only on the specific point that the Minister should be able to say that the charge will not arise, but on the more general point that people will be frightened because the legislation is too complicated to make it reasonable for ordinary people leading ordinary lives to deal with it? The complexity of the legislation frightens people.

John Burnett: The right hon. Gentleman is exactly right and I entirely agree. The self-assessment aspect of this stuff is even more confounding and difficult. Goodness knows what the average person will think when confronted by their liabilities, and so on. It is difficult enough for specialist professional lawyers and accountants. The provisions are a sledgehammer to crack a nut. The matter should have been resolved not by the income tax route, but by the inheritance tax route. The legislation is an appalling mess.
	I am grateful to you, Mr. Deputy Speaker, for allowing us to range fairly widely in this debate. I shall raise one or two other points. There is a mismatch between the gifts with reservation of benefit exemption and the pre-owned assets provision. I alluded to it in an intervention on the hon. Member for Arundel and South Downs. I gave the example of a private companysay, a French property companyowned by a father who give shares to his children but continues to live in the house owned by the company. He thus reserves the benefit of the assetsthat is, the shares giftedand those, quite properly, remain subject to inheritance tax in his estate. Paragraph 11(3)(a) of schedule 15 seeks to prevent a double charge by exempting from the pre-owned assets provisions property so subject to the gifts with reservation rules. However, the relevant property for the pre-owned assets provisions is not the shares, but the house. Will the Paymaster General correct that defect in the legislation?
	On the complexity of the self-assessment regime and the de minimis provisions, I referred to the problem that could affect many thousands of people and I have not received a precise answer from the Minister on that point. The provisions in paragraph 15 will lead to incredible expense for a great many individuals, who will have to take professional advice. The gifts with reservation of benefit rules at least fell to be interpreted mainly by those who dealt with estate planning professionally or as executors.
	In general, the provisions are a highly complex attempt to patch up deficiencies in one tax code by introducing a different code altogether or attempting to fit the two together. The pieces of the jigsaw do not fit. The provisions are unfair and over-complex, and the Government should think again.

Rob Marris: I shall try to clear up one point. There was a three-way debate on amendment No. 9 before you arrived, Mr. Deputy Speaker. There is a difference between a gift with a reservation of benefit, and a reversionary interest. A gift with a reservation of benefit means that one does not quite give it all away. A reversionary interest means that one gives it all away, but one might want some of it back later. There is a difference.

Howard Flight: The House understands that. The issue is whether, how and when the latter falls within the gifts with reservation rules. That is what I was referring to.

Rob Marris: The House understands the difference. It seemed clear that the hon. Gentleman did not understand it when he was explaining the reasons behind amendment No. 9. I am glad we now have some clarity on the matter. Amendment No. 9 may not address all the issues that the hon. Gentleman wishes it to address because, I suspect, it may be technically deficient, leaving aside the question of whether the concept is desirable or not.
	The debate on this group of amendments has been revealing. At heart Conservative Members do not like inheritance tax, but they will not say so. There is a flavour of that in the remarks of the hon. Member for Torridge and West Devon (Mr. Burnett). The right hon. Member for Suffolk, Coastal (Mr. Gummer) speaks about ordinary people leading ordinary lives. Most people who die in the United Kingdom do not even leave a will, let alone get involved in estate planning, tax planning and so on. Those who get involved in the kind of schema that will be addressed by the proposals are people who have thought about estate planning, or death duties, to use the old phrase, and about capital transfer tax, as was, or inheritance tax, as now is. Unless they are professionals, they will almost invariably have sought professional advice.

John Burnett: The hon. Gentleman made some fine contributions in Committee. From the thrust of my remarks, he will understand that not everyone will take professional advice in certain circumstances. What is his philosophy about this tax? Does he think the tax is fair, when the very richest people can escape it and middle income is caught by it? Is that not grossly unfair?

Mr. Deputy Speaker: Order. We are in danger of getting into a wide-ranging debate on taxation generally. I should be grateful if the hon. Member for Wolverhampton, South-West (Rob Marris) avoided the temptation to respond to that intervention and stuck to the points that he was making.

Rob Marris: I am grateful to you for your guidance, Mr. Deputy Speaker. The comments that the hon. Member for Torridge and West Devon made in his speech, not in his interventions, reveal something about the concept with which some right hon. and hon. Members approach the amendments.
	On two occasions the hon. Member for Torridge and West Devon referred to a French property company. While the House ought to be cognisant of the tax affairs of and possible inequities to all the citizens and taxpayers of the United Kingdom, the number who have French property companies to own their holiday home in France is minuscule. The reason they do that is almost invariably to try to get round French inheritance law.
	Those are individuals who are wealthy. They can afford a property overseas. They have had professional advice, and that advice is, Get a French property company in which you will own shares as a way to get round French inheritance laws, because French inheritance laws not only have tax consequences, but have a certain family succession built into them, such as we would have for death with intestacy. Under French inheritance law, on which I am not an expert, whatever the terms of the will of the deceased husband, for example, his wife must have a certain share in the estate and so do the children.

John Burnett: I chose that as an example because hundreds of thousands of people in this country have properties abroad. They enter into corporate arrangements, as the hon. Gentleman acknowledged, not for tax avoidance or, for that matter, tax evasion, which is unacceptable, but as bona fide arrangements made to avoid, as he says, the French inheritance laws. That has nothing to do with taxation.
	It would not matter if there were one or two people in that position, but there are hundreds of thousands of people who have such arrangements. Surely the law should recognise that if those are reciprocal arrangements to cancel out one tax disadvantage with a tax advantagethat is, gifts with reservation and this pre-owned assets provisionthey should be complete and they should not sting in part people who make

Mr. Deputy Speaker: Order. That is an extremely long intervention and we are again straying away from the amendments. Will the hon. Member for Wolverhampton, South-West (Rob Marris) come back precisely to the amendments before the House?

Rob Marris: I will endeavour to do so, Mr. Deputy Speaker. The point that I was making about the amendments, in relation to the French property issue, was to suggestI cannot prove itthat the individuals to whom the hon. Member for Torridge and West Devon referred have almost invariably received professional advice. The hon. Gentleman will know that professional advice of that sort almost invariably involves not only the legal but also the taxation aspects. If a solicitor giving such advice does not feel comfortable about also giving some taxation advice, he or she should, and usually does if acting professionally, refer that individual to a professional tax adviser. The examples given by Opposition Members do relate not to individuals who have wandered into a UK minefield created by schedule 15 and the amendments to it but to individuals who have had professional advice.

John Burnett: It is not a minefield. I am saying not that individuals in those circumstances do not know what they are doing, but that the legislation is wrong. If there is to be proper choice, they should be able to elect for one thing or the otherthey should not be stung by both.

Rob Marris: I concede that I used the word minefield and that the hon. Gentleman did not. However, he took up the word complexity, which was introduced by the right hon. Member for Suffolk, Coastal, and I concede that I elided that into minefield. That was the flavour I understood, but I apologise to the hon. Member for Torridge and West Devon if that was not his meaning; he was talking about complexity and the flavour picked up by me and, I think, by my right hon. and hon. Friends was that innocents abroadin both senses of that wordwould experience the horrible tax regime to be introduced by schedule 15, even with the wonderful amendments.

Greg Knight: A few moments ago, the hon. Gentleman asked my hon. Friend the Member for Arundel and South Downs (Mr. Flight) whose brief he was reading. May I ask the hon. Gentleman the same question, because it sounds rather as though he were reading the Government Whips Office narks' brief? When the hon. Gentleman moves on to amendment No. 10, can he tell us what possible objection there could be to the Government accepting it? Did not my hon. Friend make out an unanswerable case?

Rob Marris: I have in front of me the amendment papernot a narks' brief. There is a Whip sitting on the Treasury Bench, but I freely confess that I am not aware of whether there is a Government brief on this series of amendments. I have no idea, and I can assure the right hon. Gentleman that I am not reading from anything. Indeed, if he knew me a little better, my comments would ring all too true; I am not prone to reading out Government briefs in the House, nor are most of my hon. Friends. Of course, I do not know what Opposition Members doperhaps they read out the Conservative narks' briefs.

Dawn Primarolo: Just in case my hon. Friend thinks he might have missed out on something, I assure him that there is no Government brief for anybody in the Chamberapart from the explanatory notes to which all Members have access.

Rob Marris: I am grateful to my right hon. Friend for that comment.
	I should like to look at the amendments in their totality, starting with amendment No. 10, to which the right hon. Member for East Yorkshire (Mr. Knight) referred. The hon. Member for Arundel and South Downs raised some points about equity release schemes and I hope that my right hon. Friend the Paymaster General can reassure us all about them. The hon. Gentleman put a good question and based on my experience of my right hon. Friend, I am sure that she will have an extremely thorough and satisfactory answer that will probably calm my fears and those of the hon. Gentleman.
	Several of the amendments raise retrospective and retroactive points; some of them, including amendments Nos. 6 and 48, refer to dates in 1986 and to dates in June and December 2003. I am uneasy about provisions that go back to 1986 and I hope that my right hon. Friend can again calm my fears. To echo one of her points in the Standing Committee, it would be for the taxpayer concerned to elect whether they wanted to unbundle the inheritance tax avoidance scheme in which they were involvedin some cases, from 1986 onwardsor whether they wanted to pay the assessed income tax that would come in under the proposed regime. I must tell my right hon. Friend that 1986 seems a long time to go back. Coupled with that, can she give us some assurance about transitional arrangements? If there is to be a slab effect, or a cliff-edge effect, on tax changes such as these, it could be most unsettling for some people.
	I do not think that these proposals will have a huge effect in the constituency that I currently have the honour to represent, because house prices in Wolverhampton are not high. I am not aware that any house in the entire city is worth more than 1 million. It was of considerable amazement to the hon. Member for Arundel and South Downs when I made that point in Committee, but I have checked and I still cannot find one. None the less, house prices are rising throughout the countryI do not need to rehearse thatand more and more people could be above the current threshold of 255,000 or 260,000, or whatever the figure is under the Bill.

Greg Knight: The hon. Gentleman is raising some important issues. If he does not receive the assurances he seeks from the Paymaster General and if we push the amendments to a Division, will he vote with us? If he does so, I shall be happy to withdraw reference to the word nark.

Rob Marris: I am not troubled by references to narkamong some of my constituents they would probably go down quite well. As I said about three minutes ago, I have every confidence in my right hon. Friend the Paymaster General. As in the stock market, past performance does not always indicate future performance, but based on my right hon. Friend's past performance, I think she will be able to give me the assurances I seek in her usual lucid way. I am eager to hear those reassurances because there are concerns about transition, about the 1986 date and about equity release schemes. However, I am sure that, armed with her fantastic preparation, my right hon. Friend will be able to reassure me on those points and I await her response.

John Gummer: I shall not detain the House too long, but I want to make two simple points relating to the apprehension of what we have been discussing.
	The hon. Member for Wolverhampton, South-West (Rob Marris) accused me of intervening from a pre-stated position on the subject of inheritance tax. However, as we are discussing these particular amendments, it would be wholly improper for me to delight the House with my views on inheritance tax, which may be different from the expectations of the hon. Gentleman although probably in a more radical direction.
	Having said that, I should add that I have some clear views on the Government's responsibility to produce legislation that is seen by ordinary people to be fair. I am not keen on the argument that, because the amendments will not affect many people, they are not important. The issue is the fairnessor, even more important, appreciation of the fairnessof the tax system to ordinary people. I do not quite follow the Paymaster General's argument that those who have sought to avoid tax must pay it, although I think it reasonable to say, From now on, we will have a system whereby this, that or the other may not be done, but the tax will have to be paid.
	Let me return to the retrospection issue, which some of the amendments try at least to ameliorate. The difficulty is that people have made decisions about their future in the context of the law as it was at a particular time, for all kinds of reasons. They may be esoteric reasons. People may, for instance, consider the Napoleonic code in France to be a peculiar concept. As an enthusiastic pro-European, I think it entirely reasonable for us to have a different view from the French. If I wish to make arrangementswhich are legal in Franceto ensure that some operation that seems to be peculiar can be protected, that strikes me as perfectly reasonable.
	I agree with the hon. Member for Torridge and West Devon (Mr. Burnett) that there is something offensive in the Government's suggestion that people who have done that have done something wrong, although I realise that he was wrong to use the word criminal. I have a lot of very decent constituents who do not wish to be judged in this way when the judgment is unfair. The Government are saying, That which was perfectly all right we now judge not to be all right. Those who have done things that used to be perfectly all right will be brought before the tax system, and the Government seem to be suggesting that although they may not be criminals, they have done something slightly underhand. That is neither the law of England nor, in my view, the morality of England.
	The fact that the Government are doing that has caused real concern among constituents of mine who, although they are not in the category that is being caught by this provision, feelas is so often the casethat it is not fair. I warn the Paymaster General that the one thing that one must not do in Britain is to be seen to be unfair, and I hope that she will reconsider.

Dawn Primarolo: The right hon. Gentleman's view about fairness is central. The overwhelming majority of taxpayers pay their tax. Following repeated attempts by this Government and the last Government to stop inheritance tax avoidance schemes, we are giving the taxpayer two options. We are not backdating the provision. Under the Bill, either there will be a charge to income tax on people's new arrangements or they can revert to inheritance tax and pay what is due. That will start in 2005. As I have said, there is no retrospection. All Governments change laws in Budgets, and that is all that is being done in this case.

John Gummer: I am sure that the Paymaster General has studied rhetoric. If we agree with the first of her statements, everything else becomes rhetorical truth. Her first statement, however, is not correct. That first statement was We, in retrospect, have decided that something that was perfectly acceptable at the time is now unacceptable. To unbundle a past decision is not the same as not having made the decision at the time. If what the Paymaster General has said were true in the past, my constituents and others might well have made a series of different decisions.
	Equity is not just about saying, A lot of people think that a lot of other people are getting away with it, and we are going to stop a lot of people getting away with it. Equity is about clarity, and clarity is not something that can be introduced in retrospect. Clarity is about where we are now. The Government are saying that, because they would prefer that people do not do what they did back then, they insist that they undo it. But of course, such people are not in a position to make arrangements of the kind that they might have made in 1970. That is why the provision is retrospective; indeed, it would always have been regarded as such until this Government invented a new definition of retrospection that certainly has not been accepted by the law thus far.

John Burnett: The right hon. Gentleman is making a perfectly valid point: that because of this provision, transactions entered into after 1986 that would have been free of tax will now be subject to tax, one way or another. If that is not retrospection, I do not know what is.

John Gummer: The hon. Gentleman makes the point clearly and I hope that the Paymaster General will think this issue through. In terms of the moment, decent people made particular decisions that were legal. Now, many years later, they are being told that, one way or another, as a result of those decisions, they will be taxed, yet when they made them they would not have been taxed. Had they known at the time that that would happen, they might well have done all manner of things differently, but they cannot now do so because of a decision that was perfectly proper and legal when they made it. Whether the Paymaster General likes it or not, the provision is in that sense retrospective.
	I am happy for the Paymaster General to say that she believes in retrospection and considers it perfectly reasonable, but she would be wrong. Such an argument is offensive, but what is more offensive is for her to argue that the provision is not retrospective and that we should therefore accept it. It is a great pity that she has taken that line.
	Complexity is indeed the proper word to use in respect of this provision. It is difficult to accept the argument that the people affected are those who have access to advice and are familiar with such matters. Certain people do not fall into that category. There are those whom the Paymaster General suggested need not be worried about the provision, even though they have never had help from specialist advisers. I would be happy to accept the Paymaster General's argument if she were saying that in no circumstances would such people be charged. However, she said that they would not normally be chargedthat it is unlikely that they would be charged.
	There is no word in the English language more frightening to anyone who has been a Member of this House for more than two minutes than the word unlikely. Let us remember the number of Ministers both Labour and Conservativewho have told the House that a certain thing was unlikely to happen. I remind the Paymaster General of what was said about the European convention on human rights. I was not one of those who took an extreme view about it, but it must be said that a lot of unlikely things have become very likelyas in certainas a result. Curiously enough, in the courts, people are not being given the assurances that they expected in that regard.
	If the Paymaster General were to say that the charge will not happen, there would at least be some reason to suppose that she has taken proper advice. But she has used the word unlikely, and I still wish to stand up for those who cannot rely on any advice other than hers. Such people deserve from her a statement that is without reservation.
	The real reason why I find the whole Bill and the various amendments to it profoundly distressing is that, as a result of such legislation, it will be even more essential for people who own a house to obtain professional advice.
	I will stray for a moment into the court of the hon. Member for Wolverhampton, South-West (Rob Marris) to say that I do have a prejudice about the profession of solicitors. I think that there are too many of them, that they make too much money and that their operations should be restricted by having laws that are clearly comprehensibleinsofar as it is possibleto all of us.
	There is another profession about which I have even greater doubtsthe accountancy profession, which has been given more jobs under the present Government than under any previous Government ever. The opportunities for accountants to make money have been raised by the constant complications introduced by the Government, but I want those accountants to earn their money in useful ways.
	I believe that what brought down the Roman empire was not, as we all know, sodomy but a very significant increase in bureaucracy and in the number of people who did not actually earn wealth. The Government are great organisers of people who do not earn wealth. I am not talking just about 600,000 more civil servants, but about all the others besides who make money without making wealth. That is why I want a simpler system and why I support the proposals.

Rob Marris: I am sure that you, Mr. Deputy Speaker, would not let us stray too far into the decline and fall of the Roman empire, but the undermining of the rule of law was what led to the decline, as evidenced by the sack of Rome by the Visigoths. I declare myself to be a solicitorthough a non-practising one because, unlike many Conservative Members, I do not believe in moonlightingand solicitors are essential to the rule of law.
	My point about realty was that almost all those who engage in transactions involving its sale or lease do so with legal advice, and that the right hon. Gentleman's Government tried to simplify it by getting the solicitors out and introducing what became known as registered conveyancers. I venture to suggest that it is still the casethough I cannot prove it without going to the Librarythat well over 90 per cent. of the realty transactions in England and Wales, and probably in Scotland, are carried out with professional advisers, either solicitors or licensed conveyancers, in attendance.

John Gummer: The hon. Gentleman makes my point. Those people have their professional advisers at a particular point in time. When there were such advisers, professional advice was given, which in large measure seems to have been true. The Government are changing the rules and professional advice may not be necessary at this point. Curiously enough, these people feel that everything is all right. They have had their professional advice and think that things are okay. They do not know that the Government have shoved into the legislation all these complicated matters that totally change their position retrospectively. If they get frightened, perhaps with no need, what do they have to do? They have to go again, perhaps 20 years later, to professional advisers to secure the latest deal.
	Those people have never had to do that before in these circumstances. What happened in the past was that the information was necessary only if something was being done afresh. What is wrong is that the professional advice is necessary when something is not being done afresh. That is why the provision is manifestly retrospective. It does not need to be argued in the delicate way of the Paymaster General. The truth is there. Professional advice has to be got when someone is not doing anything. That is retrospective.
	I have expressed my concern about the professions in a fairly jokey way, but I mean what I say about the weight that the Government place on them. The amendments are designed to help a little with the problem of the weight that the Government are placing on the productive economy.
	I am one who believes that Members of Parliament are better off if they do something else outside this House because it makes them a bit more in touch. Otherwise they have only their memories and theories. I wish that the hon. Member for Wolverhampton, South-West were practising as a solicitor because he would then be able to tell us a little about the real world. It is about time that we fought on that basis. I feel very strongly about it, as do my constituents. It is all very well for the hon. Gentleman to say what he did, but the fact of the matter is that there are too many people who earn their living without adding to the wealth of this nation. A system that means that people need all sorts of help to get through their lives is going to be expensively top heavy.
	The proposals in the Bill are complex, unfair and retrospective. They will impose additional costs and reduce the country's effectiveness by making life unnecessarily complicated for ordinary people. The Paymaster General cannot get away with that. She is part of a Government who cannot get houses built and whose policies in other areas have increased house prices significantly. It is her fault that nothing has been done about inheritance tax levels to deal with that.
	That is a great pity, as Britain desperately needs to be competitive. The Government are not in the real world: their members have not had to live in the real world for a long time. They have not had to deal with ordinary people in a detailed way, and so do not realise how difficult the proposals will make their lives.

Dawn Primarolo: I absolutely disagree with the right hon. Member for Suffolk, Coastal (Mr. Gummer). That is why he sits on that side of the House and why I sit on this side. The proposals go to the heart of the Government's views about fairness, taxation and the right of citizens to expect Governments of all political persuasions to act with an even hand. A Government must ensure that, wherever possible, all citizens enjoy a level playing field, so that everyone can have access to the rights conferred on them by Parliament through legislation. This Government do not believe that some citizens' ability to pay for expensive and creative advice should enable them to get more out of the system.
	Many hon. Members contributed to the debate and I shall deal with the points that they made in the order of their contributions. First, the House will be awarealthough at times I wondered whether some of its Members werethat the proposals in the Bill are needed to tackle a range of artificial avoidance schemes. The essence of those schemes is that wealthy persons appear to give their assets away so that they can take advantage of the inheritance tax exemption for lifetime gifts. The complex legal footwork that they undertakewhich is not forced on them by the Government but for which they pay and knowingly enter intomeans that the schemes allow former owners to carry on enjoying the use of the assets very much as before.
	No Government, and especially not this one, ever intended the inheritance tax regime to be used in that way. This Government, and their predecessor, made successive attempts to block such avoidance by making specific changes to the inheritance tax rules. The most recent attempt was in last year's Finance Act 2003.
	I agree with the right hon. Gentleman in one respect, however: previous attempts in this direction led to increasingly complex legislation. Parliament was forced to follow, and mirror, the complexities of avoidance schemes to try to close them off. Parliament has tried before to impose its will by making clear what the inheritance tax regime was intended to achieve and what could be considered legitimate under the law. Despite that, the response of some taxpayersalthough not allhas been to develop increasingly contrived schemes that get around the new rules. Such schemes have been marketed as packages and offered by financial advisers to a wide range of clients. As I said in earlier debates, reports suggest that as many as 30,000 such schemes have been sold sinceI emphasise the word sincethe Government declared that they intended to do something about them. That represents a potential tax loss of billions of pounds for the Exchequer.
	Faced with avoidance on such a scale, the Government clearly needed to take actionI disagree with the hon. Member for Arundel and South Downs (Mr. Flight) about that. Schedule 15 addresses the common feature of all the schemes, which is that the former owner continues to enjoy the property that they say they have given away. It is a generic solution to a serious problem, although it has been carefully targeted. The Government have taken on board many of the points made by hon. Members, including the need for choice, the need not to have to unscramble previous arrangements and the need to consider what might happen in the future. The Government have not gone back over the past, despite the fact that the avoidance should not have happened, and any consideration of the debates in the House would prove that.
	The amendments that the Government have tabled are minor in nature but complete some of the improvements that were discussed in Committee. Amendments Nos. 91 to 93 refine the exclusions in paragraph 11 of schedule 15 and deal with the point that the hon. Member for Torridge and West Devon (Mr. Burnett) made about overseas property. Paragraph 11 deals with cases in which the property originally disposed of and still enjoyed by the taxpayer is still reflected, directly or indirectly, in the value of the estate for inheritance tax purposes. We have no quarrel with that and have made no change.
	Whatever our differences about the broad approach of this legislation, I hope that we are agreed that the charge should not apply to structures that clearly cannot involve inheritance tax avoidance. We have done everything that we can to ensure that.
	Until now, we have not covered arrangements that are unusually complex. For example, property might be owned by a company and the taxpayer is made a gift, with reservations, of shares in the company. The value of the shares reflects the value of the underlying property. The right hon. Member for Suffolk, Coastal can see, therefore, that such schemes are not simple arrangements that people wander into. The shares are, therefore, treated as part of the taxpayer's estate under existing rules. The case for exempting such schemes is essentially the same as we discussed in Committee and the amendments complete the process that was started in Committee. I hope that they satisfy the points that the hon. Members for Torridge and West Devon and for Arundel and South Downs made.
	Amendment No. 94 corrects an incorrect cross-reference in paragraph 13(3)(c) and does nothing else. Amendments Nos. 95 to 108 refine and improve the election provided for in paragraphs 21 to 23 of the schedule, which allow taxpayers to choose to have the property in question treated as part of their estate for inheritance tax purposes. The election allows people to reverse the tax effects of those avoidance schemes without having to unscramble all the legal machinery that they used to achieve them in the first place.
	It is obviously important that the detailed machinery should work smoothly across the full range of cases to which it applies. In particular, it is important that the election should bring back into inheritance tax only values that are commensurate with what the taxpayer originally sought to shelter from tax. In some cases, the taxpayer will have less than a 100 per cent. stake in the caught property. The charge under schedule 15 is rightly scaled down in such cases to reflect the extent of the taxpayer's interest, and it is right that the same should apply to the value brought back into IHT if the taxpayer makes the election. The Government amendments will ensure that, when an election is made, only the appropriate proportion of the property's value is brought back into the person's taxable estate. They also provide the opportunity to clarify the detailed operation of such elections in other respectsfor example, what the election applies to if the subject matter changes after the election has been made.
	Before I move on to the Opposition amendments, I wish to say that, as hon. Members know, current provisions in the IHT rules will not be disturbed by these rules in the extreme case where a parent moves back owing to ill health, there is a carer and an arrangement is made. None of that will be disturbed with further exemptions. I was chastised for using certain words, but the value of the property would have to exceed twice the allowance to make any difference. So, frankly, we can dispose of that point as well.

John Burnett: Will the Paymaster General give way?

Dawn Primarolo: No, I should be grateful to the hon. Gentleman if he would allow me to make a little progress on the Opposition amendments. I might be able to help with some of those points. If not, of course, I will give way to him.
	I now turn to the Opposition amendments. Amendment Nos. 1 and 4 suggest that the charge under schedule 15 should not apply where the potential taxpayer owned the caught property for at least seven years before getting rid of it. Why? If that is the intention, it is difficult to understand what the point is, apart from a desire to wreck the charge. That may be the intention, but why should we set an arbitrary limit? I am not attracted to those amendments.
	Amendments Nos. 2, 3, 5, 6 and 8 would disapply the charge under schedule 15 from any arrangement made on or before 19 June 2003, which is the effective date for the anti-avoidance legislation in the Finance Act 2003 and directed at the so-called Eversden schemes. Those amendments represent an attempt to reopen something that the House settled last year in the Finance Act 2003. The Government absolutely reject the thinking behind those amendments. I simply do not understand why the Opposition think that the Eversden case gave a permanent seal of approval throughout the tax system to the future consequences of such schemes. I certainly do not accept that suggestion.
	Amendments Nos. 7 and 9 are intended, I imagine, to cover cases where a settlor's continuing interest in the property that he or she once owned is regarded as too remote to justify the charge for one reason or another, but that could be readily exploited to let through cases that we would very much want to be caught by the schedule. Any problem in a case that can be fairly regarded as half innocent will be resolved easily enough using the other means provided in these arrangements. That part of the schedule is directed at very real mischief in the form of artificialthat is, not realtrust arrangements that allow people to put wealth outside their inheritance tax estate, while retaining effective access to those assets. Designers of those schemes have been more than willing to create artificial trust arrangements to exploit loopholes, so we can be quite sure that they would do so again if we were knowingly to leave loopholes in schedule 15, which the amendments would do.
	We cannot accept amendment No. 10, which also touches on equity release. We drafted the proposal in schedule 15 against the background of the widespread and growing use of avoidance schemes by people trying to protect their wealth against inheritance tax. The amendment would allow the great majority of those schemes, and any such future schemes, to escape any charge under the schedule.
	I accept that the amendment also addresses the sale of shares of interests in land. We considered applying the schedule to the sales of part-interests when we discussed the matter in Committee. I agreed that a point deserved thought, so I promised to consider it further, but said that I could not promise to deal with that before ReportI have not been able to do so. However, we accept that an owner could sell a part-interest as an element of an arm's length equity transaction while retaining the right to occupy the property. We are ready to explore that issue further with firms that undertake such transactions to determine whether action is needed and, if so, to establish exactly what needs to be done. Amendment No. 10 demonstrates why we would be wrong to rush into the process, but I am glad to repeat to my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) and the hon. Member for Arundel and South Downs the commitment that I made in Committee to examine part-sales further. If we find that there is a real problem, we will address it either through regulations or a future Bill, and we will cover the time periods that would be relevant.

Rob Marris: I am reassured by what my right hon. Friend says and thank her for it.

Dawn Primarolo: I am relived to hear that. Although I do not wish to embarrass my hon. Friend, he has displayed an acute understanding of the issues in the Bill. He has explained things clearly and sometimes challenged Ministers, which is always unexpected from one's own side, but to be welcomed.
	Amendment No. 11 is an attempt to provide a window of opportunity in tax years 200405 and 200506 for transactions that would otherwise be caught by the charge in schedule 15 to be unscrambled. It would achieve that by undoing the tax consequences that would normally arisefor income tax, capital gains tax, stamp duty land tax and inheritance taxfrom any steps taken to get a property back into the hands of a former owner. I must tell the hon. Member for Arundel and South Downs that I would have had sympathy with the thinking behind the amendment if we had not already recognised his underlying concerns and addressed them in a different manner.
	We raised the issue of unscrambling in the consultative document that the Inland Revenue published following last year's autumn statement. We asked for representations on how we might best cater for the transitional issuesmy hon. Friend the Member for Wolverhampton, South-West raised that point, too. The responses made it clear that unscrambling would not be practicable for most individuals affected, and that guided our approach on the Bill. We concluded that the election provision in paragraphs 21 to 23 of the schedule represented the best way of allowing former owners effectively to take back the value of their properties into their estates for IHT purposes. My hon. Friend will remember that we said in Committee that the election was allowed to roll forward to the point where the income tax charge would arise. It does not necessarily have to be made in 2005that is, if there were no charge in 2005. I believe that we have provided for the transition as well.
	Amendment No. 44 would increase the de minimis limit in schedule 15 for a benefit of 5,000 a year to one of 50,000, assuming that taxable benefits might typically reflect a yield of 5 per cent. on the capital value of the assets involved. That would allow wealthy owners to get rid of assets worth up to 1 million and retain the use of them without attracting a charge under schedule 15.
	The existing de minimis threshold is already set at a generous level and corresponds to capital values of about 100,000. Increasing the level would allow people who have a great deal of money to continue to have an unfair tax advantage compared with everyone else.

John Burnett: Will the Minister give way?

Dawn Primarolo: Perhaps the hon. Gentleman will allow me to finish responding to the amendments. It has been a long debate, but of course I will give way to him. I am nearly at the end of my response.
	Amendments Nos. 45 to 49 would disapply the charge under schedule 15 from any arrangements made before the date of the pre-Budget report. I referred earlier to the fact that between that report and publication of the Finance Bill, at least 30,000 schemes were marketed to try to get round the legislation, which the House has not yet finished considering. That reflects the view that schedule 15 is retrospective in its effect. However much I may offend Conservative Members, I do not accept that view. People with structures affected by schedule 15 have made arrangements that they fully intended to make for future effects. That is the whole point of the exercise. Anyone doing that must face the possibility that future tax changes will affect the future tax consequences of what they have done. I would be amazed if their financial and legal advisers did not have that little caveat at the bottom of the agreement, pointing out that this is not a guarantee for all time because tax consequences can change.
	If schedule 15 brings home the message that avoidance is not a one-way betby that, I mean that people do not just get away with it and then do not have to do anything about itit will be a useful addition to the direction of the benefit in the schedule. We are saying that it is better if people do not attempt change in the first place. The law of the land is that people pay this tax, and we expect them to do that. We as parliamentarians, not as any one political party

John Gummer: I can accept what the right hon. Lady says if she will admit the simple fact that this is retrospective legislation. It means that somebody who made a change believing that the law would treat them fairlybelieving that what they did was legal then and, therefore, was not attacked, as the right hon. Lady is doingdid so on the understanding that the effect of that would start when the change took place. For example, they might have given away their house and not enjoyed it at all. They might have decided that that was a reasonable choice to make. That cannot take place retrospectively. Therefore, the right hon. Lady's actions are retrospective. Will she admit that the provision is retrospective?

Dawn Primarolo: No, I will not. I cannot admit to that because it is not correct. To be retrospective would be to give ourselves legislation and go back over the years during which we are saying that this process should not have been undertaken. We have said all along that this tax planning should not have been undertaken, but it has. We have set a date in the futureApril 2005. Assuming that this part of the Bill passes through Parliament, the provision will become the law of the land and it will have to be complied with. If someone has given their property away and receives no benefit from itinheritance tax allows for that possibilitythey are not affected by the schedule, which is aimed at people who say that they have given away their property, but have not. The provision is not retrospective, but as the law of the land is changing, we have established transitional arrangements and have spelt out a long list of exemptions. I am sure that people will continue to argue that retrospectionthe previous Government did, in fact, engage in such practicesshould apply so that a change in the law can affect the past. The past is left alone, but people can elect to pay inheritance tax when liablein such cases, there is no income tax chargeor maintain their existing arrangements. If they benefit from an asset that they allegedly gave away, they will be subject to a de minimis charge of 5,000. I therefore disagree with the right hon. Member for Suffolk, Coastal about retrospection.

John Burnett: I shall not tackle the right hon. Lady about retrospection, but the position could be ameliorated. We talked about rhetoric, but what about logic? A major problem with the provision is that income tax is being used to deal with a perceived or actual inheritance tax problem. As I said at the start of my speech, assets or gifts in excess of 100,000 will be caught, because the de minimis level is 5,000. Would it not be logical to have a de minimis level of 12,500, to reflect one twentieth of the current inheritance tax exemption?

Dawn Primarolo: We are using a charge for benefit in kind. If someone has the benefit of something that they claim they no longer own, such as a house or a painting that for centuries has hung in a room and has not left it, the market says that someone else does, so there must be a charge to the former owner for that benefit. The de minimis levels are perfectly reasonable, and I repeat that about 32,000 estates a year are subject to inheritance tax.
	We discussed the issues underlying amendment No. 225 in Committee. People use what schedule 15 calls settlements for many good non-tax reasons. Unfortunately, however, others use them for avoiding tax such as income tax and capital gains tax, and there are existing provisions to counter that. They are also used to avoid inheritance tax, and schedule 15 introduces a new income tax charge to make that less attractive. Trusts may sometimes fall foul of one or more of the existing anti-avoidance provisions, as well as the new charge under schedule 15. When that occurs, schedule 15 allows a deduction for income tax or capital gains tax already due against the benefit otherwise chargeable under schedule 15. That is generousarguably, over-generousbut we are content to err on the side of generosity.
	The Opposition want to go further and allow a tax credit against tax, so if one paid enough tax under the existing provision, nothing would be paid under schedule 15. That would encourage the artificial arrangements that schedule 15 is designed to discourage and, indeed, the growth of the inheritance tax industry, which the right hon. Member for Suffolk, Coastal wants to prevent.
	Amendment No. 226 is surprising and, perhaps, revealing. It would delete an existing simple relief on straightforward family transactions by people of moderate wealth, and would replace it with a provision that is much less certain in its effects, but much more attractive to wealthy prospective avoiders. It would withdraw relief from many of the innocent cases that Conservative Members purport to want to protect, and is therefore unacceptable.
	Amendment No. 227 makes a point about how inheritance tax stands after the Bill was amended in Standing Committee. The provision in question exempts cases that would normally amount to gifts with reservations for inheritance tax purposes. It was pointed out to us that the Bill, as first published, covered only one of the two instances in the current inheritance tax legislation to which the exemption applies, so we amended it in Standing Committee to extend the relief to both possible instances. We all agree that that amendment was necessary; the only question is whether the text, as amended, achieves the required result. I am told that the schedule achieves that objective, so I am happy to assure the hon. Member for Arundel and South Downs that the Revenue understands the matter in that sense and will apply the legislation accordingly.
	In conclusion, I apologise to the House for the length of my reply, but the issue is hotly contested. I have dealt with the points raised by the amendments and resisted the wider debate about inheritance tax and fairness. I commend the Government amendments to the House and hope that the Opposition amendments are withdrawn, because they are wrong in principle. If the Opposition amendments are pressed to a vote, however, I ask my hon. Friends to oppose them.

Howard Flight: The exemption to the gifts with reservations rules to which amendments Nos. 1 and 4 relate was introduced by the Labour Government in 1999 and specifically applies to gifts of farm land, where the donor continues to enjoy the land as a partner under the terms of a partnership that had been in place for at least seven years prior to the gift. That is the simple reason for the reference to seven years, and the amendment is designed to continue an exemption that the Government introduced.
	On the bigger issue, amendment No. 11 is not perfectly worded, but the Paymaster General knows that the Government have refused to address the problem with their unscrambling formula. If one unscrambles, one does not end up in the same position as if one had never made the arrangements in the first place, because the property in question ends up with a base cost for capital gains tax, which goes forward to the next generation and is almost certainly hugely below what it would be if one had never made the arrangements in the first place. The unscrambling arrangements are an extremely damaging form of transitional arrangement.
	Without rehearsing all the arguments, my hon. Friends and I remain of the view that the legislation is retrospective. It applies substantial taxation to transactions entered into as far back as 18 years ago, when they were perfectly legal and, indeed, when the Inland Revenue said that they were perfectly legal. If that is not retrospective, I do not know what is.
	We do not wish to put amendment No. 1 to the vote, because the issue is very clear, so long as the Government understand what it is. However, we wish to press to a vote amendment No. 2, which relates to the fundamental issue of retrospection.
	I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.
	Amendment proposed: No. 2, in page 356, line 26, leave out 17th March 1986 and insert 19th June 2003.[Mr. Flight.]

Question put, That the amendment be made:
	The House divided: Ayes 153, Noes 265.

Question accordingly negatived.

Schedule 15
	  
	Charge to income tax on benefits received by former owner of property

Amendments made: No. 91, in page 362, line 30, leave out from 'time' to end of line 31 and insert
	   'when
	(a)   the relevant property, or
	(b)   any other property
	(i)   which derives its value from the relevant property, and
	(ii)   whose value, so far as attributable to the relevant property, is not substantially less than the value of the relevant property,
	falls within sub-paragraph (3B) in relation to him.
	(3A)   Where any property which falls within sub-paragraph (3B) in relation to a person includes property
	(a)   which derives its value from the relevant property, and
	(b)   whose value, so far as attributable to the relevant property, is substantially less than the value of the relevant property,
	the appropriate rental value in paragraph 4, the appropriate amount in paragraph 7 or the chargeable amount in paragraph 9 (as the case may be) is to be reduced by such proportion as is reasonable to take account of that fact.
	(3B)   Property falls within this sub-paragraph in relation to a person at a time when it'
	No. 92, in page 363, line 10, leave out from 'whether' to first 'in' in line 11 and insert
	'any property falls within sub-paragraph (3B)(b), (c) or (d)'.
	No. 93, in page 363, leave out line 23 and insert
	'Property is not to be treated as falling within sub-paragraph (3B)(b) at any time'.
	No. 94, in page 364, line 14, leave out '8(2)' and insert '8(3)'.
	No. 95, in page 365, line 31, after 'to' insert 'his enjoyment of'.
	No. 96, in page 365, line 32, leave out
	'by reference to the relevant property'.
	No. 97, in page 365, line 34, at end insert
	'by reference to his enjoyment of the relevant property, or of any other property for which the relevant property has been substituted.'.
	No. 98, in page 365, line 36, leave out
	'by reference to the relevant property'.
	No. 99, in page 365, line 38, after 'assessment' insert
	'by reference to his enjoyment of the relevant property or of any property which may be substituted for the relevant property'.
	No. 100, in page 365, line 42, after first 'the' insert 'chargeable proportion of the'.
	No. 101, in page 365, line 45, at end insert
	   '(2A)   In this paragraph, the chargeable proportion, in relation to any property, means
	DVV
	where DV and V are to be read in accordance with sub-paragraph 4(2) or 7(2), as the case requires, but as if
	(a)   any reference in paragraph 4(2) or 7(2) to the valuation date were a reference
	(i)   in the case of property falling within subsection (3) of section 102 of the Finance Act 1986, to the date of the death of the chargeable person, and
	(ii)   in the case of property falling within subsection (4) of that section, to the date on which the property ceases to be treated as property subject to a reservation, and
	(b)   the transactions to be taken into account in calculating DV included transactions after the time when the election takes effect as well as transactions before that time.'.
	No. 102, in page 366, line 10, leave out
	'by reference to the relevant property'.
	No. 103, in page 366, line 11, at end insert
	'by reference to the relevant property or any property which the relevant property represents or is derived from'.
	No. 104, in page 366, line 13, leave out
	'by reference to the relevant property'.
	No. 105, in page 366, line 15, after 'assessment' insert
	'by reference to the relevant property or any property which represents or is derived from the relevant property'.
	No. 106, in page 366, line 17, leave out 'the property' and insert
	'the relevant property and any property which represents or is derived from the relevant property'.
	No. 107, in page 366, line 22, leave out from 'property' to 'remains' in line 24 and insert
	'or the property which represents or is derived from the relevant property'.
	No. 108, in page 366, line 41, at end insert
	   '(6)   Subject to sub-paragraph (5), the election takes effect for the purposes of inheritance tax from the beginning of the initial year within the meaning of paragraph 21 or (as the case requires) paragraph 22 or, if later, the date on which the chargeable person would (but for the election) have first become chargeable under this Schedule by reference to the property to which the election relates.'.[Dawn Primarolo.]

Schedule 16
	  
	Relief where national insurance contributions met by employee

Amendment made: No. 109, in page 372, line 18, after 'section 484(7)' insert
	'of the Income Tax (Earnings and Pensions) Act 2003'.[Dawn Primarolo.]

Clause 131
	  
	Companies in partnership

Amendment made: No. 110, in page 117, line 41, at end insert
	'(5A)   If any non-income amount is taken into account in computing a relevant profit, then for the purposes of subsection (5) the amount of the company's due share of the relevant profit and the amount of the share of the relevant profit that was actually allocated to the company shall be taken to be what they would have been if all non-income amounts had been left out of account in computing the relevant profit.
	(5B)   In subsection (5A) a non-income amount means an amount that for the purposes of corporation tax would not be taken into account as income or in computing income.'.[Dawn Primarolo.]

Clause 147
	  
	Meaning of pension scheme

Amendment made: No. 111, in page 141, line 40, leave out from 'Part' to end of line 45 and insert
	'overseas pension scheme means a pension scheme (other than a registered pension scheme) which
	(a)   is established in a country or territory outside the United Kingdom, and
	(b)   satisfies any requirements prescribed for the purposes of this subsection by regulations made by the Board of Inland Revenue.
	(8)   In this Part recognised overseas pension scheme means an overseas pension scheme which
	(a)   is established in a country or territory prescribed, or of a description prescribed, for the purposes of this subsection by regulations made by the Board of Inland Revenue, or'.[Dawn Primarolo.]

Clause 162
	  
	Pension rules

George Osborne: I beg to move amendment No. 27, in page 151, line 16, leave out
	'70% of the basis amount for the alternatively secured pension year'
	and insert
	'the greater of:
	(a)   70% of the basis amount for that alternatively secured pension year, or
	(b)   in an alternatively secured pension year other than the first alternatively secured pension year, the aggregate of:
	(i)   the total amount of alternatively secured pension which could have been paid to the member in all previous alternatively secured pension years less the amount actually paid to the member in those alternatively secured pension years (the undrawn alternatively secured pension), and
	(ii)   70% of the basis amount for that alternatively secured pension year (calculated after deducting from the sums and assets representing the member's alternatively secured pension fund on the nominated date the amount of the undrawn alternatively secured pension).'.

Mr. Deputy Speaker: With this it will be convenient to discuss the following:
	Amendment No. 28, in page 152, line 44, leave out
	'70% of the basis amount for the alternatively secured pension year'
	and insert
	'the greater of
	(a)   70% of the basis amount for that alternatively secured pension year, or
	(b)   in an alternatively secured pension year other than the first alternatively secured pension year, the aggregate of:
	(i)   the total amount of alternatively secured pension which could have been paid to the dependant in all previous alternatively secured pension years less the amount actually paid to the dependant in those alternatively secured pension years (the undrawn alternatively secured pension), and
	(ii)   70% of the basis amount for that alternatively secured pension year (calculated after deducting from the sums and assets representing the dependant's alternatively secured pension fund on the nominated date the amount of the undrawn alternatively secured pension).'.
	Amendment No. 18, in schedule 28, page 441, line 3, leave out '50 members' and insert
	'20 members or such other number of members as may be prescribed from time to time'.
	Amendment No. 19, in schedule 28, page 441, line 9, leave out
	'with 50 or more members'
	and insert
	'to which sub-paragraph (1) does not apply'.
	Amendment No. 29, in schedule 28, page 445, line 22, at beginning insert
	'Where this sub-paragraph (4) applies by virtue of sub-paragraph (3), when the member dies,'.
	Amendment No. 30, in schedule 28, page 445, line 37, leave out second 'the' and insert 'that'.
	Amendment No. 31, in schedule 28, page 445, line 39, leave out second 'the' and insert 'that'.
	Amendment No. 20, in schedule 28, page 446, line 26, leave out '50 members' and insert
	'20 members or such other number of members as may be prescribed from time to time'.
	Amendment No. 21, in schedule 28, page 446, line 33, leave out
	'with 50 or more members'
	and insert
	'to which sub-paragraph (1) does not apply'.
	Amendment No. 32, in schedule 28, page 450, line 31, leave out second 'the' and insert 'that'.
	Amendment No. 33, in schedule 28, page 450, line 33, leave out second 'the' and insert 'that'.
	Government amendments Nos. 112 and 113.
	Amendment No. 34, in clause 186, page 165, line 31, at end insert
	'(6)   An individual may by notice to the Board of Inland Revenue elect that contributions made on or before 31st January in any tax year are to be treated as having been paid during the preceding tax year.'.
	Amendment No. 15, in schedule 31, page 470, line 12, at end insert
	'(2A)   In that subsection, immediately before the entry relating to section 616, insert
	section 607 (retirement annuity contracts).'.

George Osborne: We now come to a group of amendments on the Government's reform of pensions taxation, which detained us for a few Committee sittings. The Government call it simplification, but with 151 pages of primary legislation, well over 100 pages of secondary legislation, and 350 page of guidance notes, that is something of a euphemism.
	The Government say that they are sweeping away eight pension regimes, and replacing them with one. However, PricewaterhouseCoopers say:
	The Bill reveals that the Government's original intention to reduce eight tax regimes to one has actually resulted in the creation of six separate regimes.
	Nevertheless, at the beginning of the Committee, I welcomed the overall package of reform. Our amendments in Committee were designed to remedy mistakes that we thought we had identified, and that the industry had asked us to remedy, to highlight issues for debate, and to tackle what we thought were major injustices. Sadly, none of our amendments were accepted in Committee, which was a great shame, not least because I had voted for the Financial Secretary to be Minister of the year in The House Magazine awards, which are taking place this evening. I hope that our proceedings do not go on so long that she is unable to attend the awards ceremony, as that would be a great shame. We will see how we get on.
	As I said, the amendments that we tabled in Committee were probing, technical and so on. The amendments that we have tabled on Report focus by and large on what we regard as the major injustices that remain in the package and the big issues of principle.
	Let me start with an issue that we did not discuss in Committee. Amendment No. 34 is to clause 186, which says that the maximum tax relief on contributions to which a person is entitled in a tax year is equal to their taxable earnings for that year or 3,600, whichever is higher, although, of course, there is an annual limit of 215,000. The Institute of Chartered Accountants contacted us to raise its fear that
	these proposals will put the self-employed at a serious disadvantage as compared to the employed and . . . this will undermine the Government's overall objective in relation to pension reform.
	The reason is that most self-employed people will not know their taxable earnings until after the end of the tax year, so they will be unaware of the maximum tax relief on contributions to which they would have been entitled. That makes financial planning extremely difficult for them. There will even be those whose UK earnings are zero in a particular year: for example, because they have made a loss in that year.
	The current pensions taxation regime accommodates those fluctuations by allowing individuals to nominate that any single year's earnings can count not just for that year but for the five subsequent years, and a payment to a pension scheme made by 31 January in the following tax year, or, if earlier, the date that a tax return is filed, can be treated as if it is paid in the previous year of assessment.
	Again, the Institute of Chartered Accountants tells us:
	We believe that both these existing measures provide considerable flexibility and certainty to the self-employed and think that the rules in the Finance Bill should be amended.
	It goes on to say:
	We recognise that the new limit of contributions of an amount equal to a person's relevant earnings rather than a percentage of new relevant earnings is more generous than the current rules and that the Government may not wish to allow net earnings for a year to be nominated for the next five years. Our suggestion is that the rules should be amended so that taxpayers can elect to treat a payment made by 31 January in the following tax year as made in the previous tax year.
	That is what amendment No. 34 does. It is not an issue that we discussed in Committee, but it is relevant. There is a large number of self-employed people. The Institute of Chartered Accountants is an extremely reputable organisation. If it has identified the problem, I am sure it has a point.
	I should be interested to hear what the Minister says. If she cannot accept our amendmentgiven the track record so far, I would be optimistic if I thought she was about to accept itI ask her at least to consider the matter. We have another Finance Bill next year, before the reforms come into place. I hope we will get an assurance from her that she will examine the problem that we have brought to the attention of the House.
	I turn to two issues that were discussed in Committeefirst, that to which amendments Nos. 18 and 19 apply: the strange requirement, which appears in paragraph 2 of schedule 28, that a pension scheme with fewer than 50 members secures scheme pensions through an insurance company, for example, by buying an annuity. I say that that is a strange requirement, first, because it did not appear in any of the consultation documents and the industry was not consulted on it. It was one of the big surprises when the Bill was published.
	Secondly, the requirement is strange because, of all the debates that we had in Committee, I feel that this is the one on which the Minister was least sure of her arguments. She said that it was all to do with protectionthat small schemes ran the risk of not providing a pension for life because they were not large enough to pool the mortality risk of members. But she produced no evidence to back up that assertion. She provided no facts about the number of small schemes that were unable to honour their scheme pensions. Then she conceded that the issue of member protection was really a matter for the Department for Work and Pensions.
	In Committee the Minister said:
	I also recognise that the DWP is in the process of making changes to its rules on scheme funding requirements and that, together with the pension protection fund, it should protect the pension funds of some small schemes. However, we are not yet in a position to know exactly what those protections should be.
	I will, however, give a commitment to the Committee that once that has been fully decided and those rules are in the public domain, we will examine this again to see whether there is any overlap of regulation, and whether this is the appropriate way to ensure that members of smaller schemes are protected against longevity risk. In the meantime, I suggest that the provision remains in the Bill.[Official Report, Standing Committee A, 8 June 2004; c. 498.]
	That hardly reflects the confidence and assurance that one expects from a Treasury Minister seeking to change the law. To paraphrase, she said, I know that the Department for Work and Pensions is working on this. I am not sure exactly what it will come up with, but in the meantime let's put the provision in the Finance Act and if we don't need it, I suppose we can take it out.
	I believe we should approach the matter in a different manner. Let us see what the Department of Work and Pensions comes up with, see whether the provision is necessary, and if it is necessary, put it in the Finance Bill next year. It is a stand-alone provision, in the sense that it does not affect the rest of the new pensions taxation regime.
	The Minister also conceded in Committee that the number 50 was a relatively arbitrary figure. She guessed, using a Government Actuary survey, that between 86,000 and 98,000 schemes could fall into that category, but she was not sure. She revealed that the 50-member cut-off would not apply where a scheme originally had more than 50 members, which we did not know until then.
	As I said, the Financial Secretary did not advance her strongest arguments at that point. The requirement could impose a considerable cost on smaller schemes. Buying annuities can be expensive and it may not be appropriate for a scheme to buy a large number of annuities at a particular time. Annuities include up-front administration costs; they are built into the price of the annuity and will fall on the member, whereas in many schemes they are paid by the employer. Members in such schemes could be at a disadvantage. The cost of the annuity also includes the profit margin of the provider. No detailed work has been published on those issues and there has been no consultation with the industry about the possible costs for smaller schemes, nor, as far as I am aware, has there been a detailed regulatory impact assessment.
	In Committee, we proposed scrapping the whole requirement by simply removing it from the Bill. We suggested to the Financial Secretary that she reconsider it and that if the provision really were needed, she could include it in next year's Finance Bill. However, we were required to come up with something different on Report so that our amendment would be selected and discussed; our amendment proposes, therefore, to replace the threshold of 50 members with a threshold of 20. That is because there is a much greater risk of a large proportion of members living longer than expected when there are only 20 members. Relatively, a 50-member scheme is not small, and many medium-sized schemes could be affected, whereas a 20-member scheme is, by a distance, smaller.
	The amendment includes provision for the Financial Secretary to change that number by regulation. She may discover that the provision is not needed so the requirement could be eliminated, or she could increase the number from 20 to 50 or 100. We have given the hon. Lady some flexibility. She is not even sure whether the original provision is required and is awaiting developments from another Department, so the figure of 50 gives her no flexibility.
	The best reason for changing the figure from 50 to 20 is that I have heard from people in the Inland Revenue that they are considering that reduction. I thought that I would help the Government with their discussions by tabling the amendment, so that the Financial Secretary does not have to do what she may already be consideringshe can simply accept my amendment.
	Finally, I turn to the proposals on alternatively secured income. We had a good, wide-ranging debate on that new concept in Committee. According to the Government, it is designed to tackle the well-established objections of some religious groups, such as the Christian Brethren, to annuities, which they correctly believe are a speculation on the length of a person's life. They heed Corinthians, which tells us
	ye are not your own . . . For ye are bought with a price,
	so they decided that it would be wrong for them to purchase annuities. That is a long-established belief of the Brethren, stretching back to the 19th century.
	There are 14,000 Brethren in the United Kingdom and until now the Government have steadfastly refused to help them. The issue has been debated many times and has been brought to the attention of the House by Conservative Members. I praise in particular my right hon. Friend the Member for Skipton and Ripon (Mr. Curry) and my hon. Friends the Members for Tiverton and Honiton (Mrs. Browning) and for Arundel and South Downs (Mr. Flight), who in a succession of private Member's Bills and so on have come up with more and more ingenious devices to help the Brethren; for example, they came up with the concept of a retirement fail-safe fund.
	Suddenly, however, the Government swept away all their previous objections and came up with a fairly straightforward answer. They said, Fine, you can draw down up to 70 per cent. of the annuity that you could have bought at the age of 75, provided we assess it each year. We'll call it an alternatively secured pension. In fact, alternatively secured pension is a bit of a misnomer, because the pension is not secured against anything in any real sense, but if it makes the Government feel better to call it that, we do not object.
	We should pay tribute to the Brethren for their long and, ultimately, pretty successful campaign. We should also pay tributeas I already haveto my hon. Friends who have advanced their cause here. In a letter to my hon. Friend the Member for Arundel and South Downs, a representative wrote:
	We would like to thank you, on behalf of the Brethren, for your constant support in our appeal to Ministers to obtain a pension provision that would accord with our beliefs . . . thank you for your kind and consistent support that has helped to obtain this provision.
	The Brethren also wanted us to thank the Minister for listening to our arguments, which I am happy to do.
	The solution that the Government have come up with is, however, marred by a great injustice, which my amendments Nos. 27 to 33 seek to remedy. The Government say that a scheme member using an ASP can draw only 70 per cent. of the amount that could be generated by an annuity for someone aged 75. In Committee we tabled amendments to turn the 70 per cent. into 100 per cent., but the Government rejected them. What we have tried to do here is get rid of the requirement always to apply the funds to an annuity, which someone could buy at the age of 75.
	The ASP will become increasingly unfair as a member gets older. According to the Association of Consulting Actuaries, by the time that 75-year-old is 80 he or she will be drawing just 55 per cent. of the annuity that could be purchased in the market, and at 80 the amount will be just 43 per cent. The ACA says:
	Clearly the government is keen to ensure that people using ASI do not erode their pension savings too quickly and hence have recourse to social security but the basis proposed is far too penal and discriminates unfairly against those who do not wish to buy an annuity on religious grounds.
	The ACA believes, and we believe, that even if we accept the Government's argument that they want to protect the Exchequer and are not prepared to get rid of the annuity rule in general, the combination of the annual review of someone's fund and the 70 per cent. rule is more than enough protection for the Exchequer. Indeed, I would argue that there is a danger that if people are forced on to such potentially low incomes, they may fall back on means-tested benefits.
	Our amendments seek to achieve two things. First, they would allow someone with an ASP to draw 70 per cent. of the annuity that can actually be bought with the pension pot availablerather than the amount that could be bought by a 75-year-oldwhile retaining the annual review, which is the best check that funds will not run out. Secondly, they would allow someone to catch up. A member who had not drawn the full 70 per cent. in the previous year could do so in a subsequent year. There could be a number of years in which their income needs were not particularly great; then suddenly, they might want to go on holiday or to carry out home improvements. In such a situation, they ought to be able to make up the difference through the money that they had not drawn down in previous years. The ability to do so would give them some flexibility.
	We had a debate on how attractive the alternatively secured pension will be to the wider public. Many in the industry think that a relatively large number of people might take up that option in order to pass on their pension pot to their children. The Financial Secretary was pretty sure that that would not happen; time will tell. But there is no doubt that that option will be used by religious groupsincluding the Brethren, one hopesto provide them with an income in retirement. I have no problem in saying that the Government have taken a major step forward, but they are still in danger of denying such people a decent income in retirement.
	The Financial Secretary is likely to rehearse many of the arguments that we heard in Committee, and to say exactly the same as she said when I made these points then. Perhaps she can at least give a commitment to considering this issue, and to listening to representations from the Brethren. One of the people from that organisation who wrote the original letter phoned me yesterday to discuss this issue, so it is clear that they are still concerned about it. I hope that the Financial Secretary will listen to such views in the course of the next year, and if necessary introduce changes in the next Finance Bill. If she is not prepared to do so, she could just as easily accept my amendment today and solve the problem here and now.

Quentin Davies: I rise to speak to my own amendment in this groupNo. 15but I shall not be seeking your consent to press it to a vote, Mr. Deputy Speaker. The issue that I am about to discuss was brought to my attention by the Low Incomes Tax Reform Group and Tax Volunteers, and in that regard I am very grateful to Mr. John Andrews and Mr. Robin Williamson. I was for many years an advisor to the Chartered Institute of Taxation, which supports, but in no sense has a financial interest in, those two bodies. Indeed, nobody has a financial interest in them because they are pro bono bodies; in fact, Tax Volunteers is a registered charity.
	The intention behind my amendment is to add to the list of forms of income that can be paid through the pay-as-you-earn system, where tax is deductible at source, payments under retirement annuity contracts. The object is that the tax treatment of retirement annuities should be exactly the same as that of occupational pensions or employment earnings. The big advantage is that, if tax is deducted at source and the tax code is correctone assumes that it is; if not, it can rapidly be modifiedthe taxpayer receives the exact amount of money that they ought to receive net of tax, and no tax is withheld by the Revenue. Such a withholding involves a very considerable cash-flow loss to the taxpayer.
	At the moment, tax is deducted at source from retirement annuity contracts, as with some other forms of savings income, at the standard rate of 22 per cent. The rather sad problem is that many people who have retirement annuities have small annuities and are very poor. The average retirement annuity premiumthe capital sum paid to purchase a stream of annuitiesis some 22,000. When I first saw that figure, I could not believe it; I thought that it was the average annuity in payment, although I admit that such a figure would be rather high. The fact is that that is the average premium in the country. Labour Members often mention in debates that there are a lot of so-called fat cats earning a large amount of money. Of course there are, but the average must reflect the fact that there are many people whose total accumulated capital, with which they can purchase an annuity contract, is very substantially below 22,000.
	It is a tragic position. We are dealing with many poor people here, and I wish I knew exactly how many. I tabled a question the other day asking how many recipients of retirement annuity contracts in this country were entitled to tax rebates from the Inland Revenue, their marginal tax rate being either zero, when income falls below the required level of the personal allowance, or 10 per cent. In either case, people would be entitled to a repayment by the Revenue, but the Government response to my question was that they did not know the answer either. There are clearly many people who fall into this categorycertainly at least tens of thousandsand some of them are in a rather cruel position.
	The Government will probably tell me that when people's income is below the personal allowance threshold and they are not liable for any tax, there is the R89 procedure, which enables them to apply to the Revenue to have their retirement annuity paid gross, without deduction. However, that does not work for people whose income is taxable at the marginal rate of 10 per cent.
	If we are talking about people whose income falls below the personal income limitonly about 5,000 or 6,000, or perhaps a little more with the age limitwe are talking about people who are, frankly, pretty poor. Let us face it, such people may be unsophisticated in financial matters and perhaps completely foxed by the administrative problems of securing the repayment. They will certainly not be able to afford professional advice. A few hours of professional advice might consume their entire income for the year, so it is wholly unreasonable to assume that they should take such advice to secure the refund. There may be some pathetic, very sad casesone fears they must existwhere people have their tax deducted quite wrongly by the Revenue and they never claim it back at all. Furthermore, some people who manage to work out the right administrative procedures to reclaim the tax may have to wait a long time. They cannot use the R89 procedure if they are in the 10 per cent. tax bracket. They may have to wait many monthsperhaps the Paymaster General can tell us exactly how many. It certainly takes a long time to get money back from the Inland Revenue, as we know.
	I would like to cite one or two cases put to me by the Low Incomes Tax Reform Group. One case was that of Ron, a pensioner aged 76 who lives alone. His income for 200405 is his state retirement pension of 4,140 and his retirement annuity of 2,950a total income of 7,090. This is a man on a very modest income and it is right for the House to pay attention to the position of people in such circumstances. His income tax liability will be 14 for the whole year, yet basic rate tax of 649 is deducted from his retirement annuity at source, leaving him to claim back from the Revenue the 635 that he does not owe. That is a cruel situationa theoretical example, but it could exist.
	Let us consider another case of someone with a total income of 6,831. That figure was chosen in order to make a point, but again there could well be many real people with exactly that income or very close to it. It was chosen because it happens to be 1 above the personal allowance limit. The tax liability in that case is 10p for the year in question. However, the individual has a retirement annuity of 3,000, so 660 tax is deducted before he gets it. In that way, people on very low incomes regularly lend the Inland Revenue over 600, which is a colossal amount of money for them.
	I know that the Government understand this, as the problem has been raised with them many times. I should be delighted if I were the first person to bring this matter to the Government's attention, but I am not. The Government have been lobbied on this matter by many people, including the Low Incomes Tax Reform Group, for many years. The Paymaster General is not in her place just now, but she told the House four years ago that the Government were investigating ways of making progress on the matter. She said that they were in discussions with the industry about simplifying the system to make it much more responsive to pensioners.
	I asked a parliamentary question on this matter recently in an attempt to keep up the pressure, and I got an answer on 1 July. It was signed by the Paymaster General, and I am sure that the Financial Secretary is aware of what it contained.

Ruth Kelly: indicated assent.

Quentin Davies: The answer stated:
	The Inland Revenue are setting up a joint working group, including representatives from both RAC
	that is, retirement annuity contract
	providers and those who represent the pensioners interests such as the Low Incomes Tax Reform Group, to carry out an assessment of the scale of the problem and to explore options for resolving this issue by April 2007. The group will also look at practical solutions in the short term to help those pensioners who may be suffering a cash flow disadvantage under the current system.[Official Report, 1 July 2004; Vol. 423, c. 381W.]
	By their own admission, the Government have known about this problem for three or four years. The answer states that the Inland Revenue are setting up a working group. The continuous present tense is sometimes used to indicate the immediate future, so that may mean that the working group will be established in August, September or October, with a view to doing something about the problem by April 2007.
	The examples that I gave are genuine enough. One may be a typified example, but they offer authentic instances of the impact of the present regime. They show that people in their late 70sand there will be some in their 80s and 90sare having hundreds of pounds abstracted from their very low incomes in a way that is very unjust and unfair. I do not believe that the Government can make a case for the present system on the grounds of morality or of economic rationality, or in any other reasonable way.
	Many of the people who are suffering from this problem are elderly, and some may be dead by the time the Government resolve the matter in 2007. In bringing forward this matter again, I do not claim credit or originality: it is not as though no one had identified the problem before. I simply beg the Government to show the requisite urgency in dealing with the injustice that I have described.
	The people who are suffering from the problem are very vulnerable. This afternoon, the House has spent a lot of time talking about people with millions of pounds who are able to perform complicated tax planning about their estates. That is fine, and it is right to pay attention to such things. We need to look at the matter objectively, and ensure that the principles of justice, clarity and transparency in our tax system are applied; but how much greater is our obligation to do that for poor retired people who receive only 5,000, 6,000 or 7,000 a year? They cannot afford professional advice, or paid advocacy.
	I find it hard to believe that the Financial Secretary can refute either the substantive or the normative points that I have made. I hope that she will say that the Government will adopt some urgency in the matter, and all she has to do is give the requisite instructions to her officials. However, we need to get this sorted out a lot quicker than the Government appeared to envisage in their reply to me of 1 July.

Ruth Kelly: We have had a good debate so far on this important subject. The debate has touched on pension scheme benefits and contribution rules. In the interests of being precise and concise, I shall deal with the points that have been raised, rather than elaborate on some of the grander themes.
	The hon. Member for Tatton (Mr. Osborne) mentioned amendment No. 34. As he well knows, we have introduced a simplified system with generous limits, in which contributions can be made to a pension fund of up to 100 per cent. of an individual's earnings in any given year. He asked especially about the self-employed and how the limits would affect a self-employed person whose earnings are not known until the end of the financial year. He asks how such a person would know what represented 100 per cent. of their earnings, and he has tabled an amendment to try to address the problem. I agree that some self-employed people will not know their final earnings until after year-end, but as the hon. Gentleman acknowledged, the new limits of 100 per cent. of relevant earnings chargeable to tax in the UK are extremely generous compared with existing levels of relief. The self-employed will, over a period, be able to plan pension contributions on a relatively safe basis, by basing contributions on known levels of earnings.
	Very few people contribute the maximum under the current rules, which only allow up to 40 per cent. of earnings, depending on age and the type of scheme, and are much more restrictive than the new rules. The new limit of two and half times that figure will provide more than adequate leeway for the vast majority of people. If someone were to inadvertently exceed the 100 per cent. limit, the scheme will have provision to refund the excess without any tax charge on the sum refunded. Those comments more or less deal with the hon. Gentleman's point.
	Very few people raised the issue in representations to the Government or to the Inland Revenue. It did not come up in consultation. Only three out of 209 responses referred to it at all, and only one representation on the issue was received following the publication of the Finance Bill. It was probably the same representation as the hon. Gentleman mentioned. Of course, we keep all such provisions under review, but in the interests of simplicity I urge him to accept that the system that we will introduce is not only more generous, but simpler than the one it replaces.
	The hon. Gentleman also mentioned the 50-member limit. We had a long and constructive debate in Committee about that and the requirement to buy an annuity for pension funds with fewer than 50 members. I urge him and other members of the Committee to consider that the Government have a responsibility when providing tax relief for pension savings. It is important to ensure that the relief is used for its intended purpose, which is to provide members with a pension for life. The annuity requirement is designed to ensure that it is possible for a fund to provide a pension for life. The hon. Gentleman may dispute the appropriate number of memberswhether it should be 20 or 50, or perhaps 60 would be better. We could talk for hours about the appropriate number, but it is not possible to say precisely what size of scheme would provide a large enough pool so that funds would be protected if, for example, all the members lived longer than expected. That could depend on a range of factors, such as the gender of the members or the type of occupation. However, we can say that it is unlikely that a scheme with fewer than 50 members would be of sufficient size adequately to pool the mortality risk.

George Osborne: Can the Financial Secretary give us some evidence of the problem that she has identified of the small schemes being unable to pool mortality risk? How many such small schemes have run into difficulties, and why does she think that it is the Inland Revenue's job through the tax rules to offer member protection, when we have just had a Pensions Bill from the Department for Work and Pensions that contained many member protection features?

Ruth Kelly: I was about to deal with some of those points when the hon. Gentleman intervened. There is a tax rationale, because we provide tax relief to assist people in achieving a secure income in retirement. It is only right that we try to ensure that the funds are used for the appropriate purpose. There is also a member protection rationale that will rightly be considered by the Department for Work and Pensions in regulations. Those regulations will be produced in the usual way and considered over the coming months. In order to ensure that there is no overlap between the provisions and the Bill, I have given a commitment to look closely at the regulations to ensure that that does not happen. If there is an overlap, we will of course review the requirement. In any event, there is a clear tax rationale for the requirement to take out an annuity.

Howard Flight: Have the Government had any thoughts about transitional arrangements? A final salary pension scheme with, for example, 50 members that has been operating on the basis of an ongoing portfolio is likely to encounter very substantial additional costs in suddenly paying annuities for all its members. With pension funds substantially under water already, that could result in a lot of final salary pension schemes going to the wall.

Ruth Kelly: I should like to make a couple of points about that. First, we have not received representations about that issue, which in itself suggests that it is not likely to be a significant problem. Secondly, it is not at all clear that an additional cost will be imposed on small schemes. That is completely dependent on the nature of the scheme. When an insurance company provides the scheme pension, it will be necessary for the entire purchase price to be paid from the scheme to the insurance company as either a one-off lump sum or in a series of payments. However, where the scheme itself pays the pension, cash injections from the employer may be required to ensure that the pension is payable for the member's lifetime. So in the long run, the insurance company route may cost no more and might, in fact, even be cheaper than the in-house pension route. So I do not foresee the situation that the hon. Gentleman envisages arising in many cases.
	I now turn to the alternatively secured pension debate that, again, we had in Committee. The hon. Member for Tatton has referred to the Government's decision to set the rate at 70 per cent. of the relevant annuity rate. The reason for that decision is to ensure that an income can be provided for life, thus providing security of income for the members. Indeed, that can be rightly described as a secured pension. He asked why we chose 70 per cent. With a maximum income of 70 per cent., for example, if a group of people all take their fund into alternatively secure pensions at the age of 75, only 5 per cent. of them could expect their maximum income to fall to a third of its initial value if they grew 70 per cent. of a comparable annuity each year. If the maximum income were to increase to 100 per cent., the incomes of 30 per cent. of that group would drop to a third. That is therefore an incredibly important part of our provisions which will ensure a decent and secure income for life. The hon. Gentleman argued that the Brethren have been lobbying him to increase the limit from 70 per cent., but that is not my experience of the Brethren's position, although we always listen to them and will continue to do so.

George Osborne: The thrust of my speech when I mentioned the Brethren was to peg things to the annuity that can be bought at the age of 75. Even when people are 85 or 90-years-old, they must still be measured against the annuity that can be bought at the age of 75. The Financial Secretary is knocking down the arguments that I advanced in Committee, not on Report.

Ruth Kelly: I have explained that the rules exist precisely to ensure that the funds are not depleted too quickly. The hon. Gentleman's amendments would create a significant risk in each case that the funds would be depleted too quickly. Clearly, if people are not members of the Brethren, they always have the option of annuitising if they find that the conditions do not suit them and they want to maximise their potential income. I understand that the Brethren fully welcome the Government's proposals and do not argue that any different provision need be made.
	I shall not rerun the debate about whether people other than the Christian Brethren will use alternatively secured pensionsother than the hon. Member for Arundel and South Downs (Mr. Flight)apart from issuing the warning that, if we find that people intend to use the alternatively secured pensions to bequeath any unused funds to their dependants, we will of course review the provisions, and we could consider ways to tighten up the proposals to make that a very unattractive option.
	The hon. Member for Grantham and Stamford (Mr. Davies) was absolutely right to table amendment No. 15 and I enjoyed his contribution to the debate. He explained well that in the new regime, all pension incomes from registered pension schemes will be subject to the operation of pay-as-you-earn by the person who pays the pension. That includes income paid from retirement annuity contractsRACs, as they are commonly referred tobecause from 6 April 2006, they will come under the umbrella of registered pension schemes.
	During the preparation of our simplification proposals, the industry made strong representations that annuities paid under RACs should not be subject to PAYE for a temporary period. I agree with the hon. Gentleman that we must ensure that pensioners in receipt of RACs do not suffer as a result of the current arrangements, and I stand by the Government's previous commitments to protect their positions as far as possible, to which he drew attention.
	We need to ensure that the change is carried out effectively and efficiently. The task will not be achieved without difficulty, because bringing those pensioners under PAYE will take up the time and resources of not only the Inland Revenue, but the industry. For example, all pensioners will have to be contacted to get the necessary information to operate PAYE. Unfortunately, as I am sure that the hon. Gentleman will agree, some pensioners are often reluctant to respond to Inland Revenue requests for such information, so it is an unfortunate fact of life that despite the best will in the world, the task will be resource intensive and its completion will take time. That is why I have asked officials in the Inland Revenue to form a joint working party, including representatives of RAC providers and bodies that represent pensioners' interests, such as the Low Incomes Tax Reform Group to which he referred, to carry out a feasibility study to take account of the scale of the problem with the aim of resolving the matter by 2007, and to examine short-term measures that might help to alleviate the problem to which he referred so that people are not penalised unfairly by the current system. We intend to resolve the matter as quickly as possible.

Quentin Davies: I am grateful to the hon. Lady for her response to my points; she is saying all the right things. However, she will agree that the Government have known about the problem for many years and that they have been promising to take action for the past four yearssince 2000. There must be a sense of urgency now. I was grateful that she referred to short-term measures that could be introduced before the deadline in 2007. Will she give us an indication of what those measures might be and the time scale in which they could be implemented? I am grateful for the general response that I have received, which will also have been noted by many people in the country with enormous pleasure and relief.

Ruth Kelly: I thank the hon. Gentleman for his comments and assure him that officials in the Inland Revenue are already in touch with the Low Incomes Tax Reform Group and industry representatives to try to sort out the problem. We are especially determined, as are they, to try to solve the short-term cash-flow difficulties experienced by pensioners who are disadvantaged by the current system. I believe that one measure under consideration is giving pensioners the ability to claim back tax from the Inland Revenue within year, which should alleviate some of the cash-flow disadvantages to which he referred. We hope to resolve the problem by 2007, and he will agree that if we can both take short-term measures to alleviate problems, and look towards a deadline for resolving longer-term issues, that will represent progress. The Government are intent on solving the problem.
	Government amendments Nos. 112 and 113 will clarify and make minor changes to the lump sum rules in schedule 29. They will ensure simply that the definitions of winding up lump sums and winding up lump sum death benefits apply to the whole of part 4 of the Bill, rather than only schedule 29. I urge the House to accept those amendments, and hope that the hon. Member for Tatton and other hon. Members have been reassured by my comments.

George Osborne: I join my hon. Friend the Member for Grantham and Stamford (Mr. Davies) in welcoming what the Minister had to say about his amendment. As he said, we have had previous assurances from the Governmentperhaps not as full as the one given by the Financial Secretaryand we shall hold the hon. Lady to what she does rather than to what she says. I am sure that she means to implement these measures and, particularly, to provide short-term measures that she has talked about.
	Amendment No. 34 is about the self-employed. The hon. Lady said that the regime was generous in terms of the amount of money that people could put in and that there was more than adequate leeway for the self-employed. She is right that the regime is generous, and I think that I said that. She said that any overpayments would be refunded, but she did not say that the self-employed would be able to make up any underpayments. The system does not help those who are not sure of their income from year to year. They may have zero income some years. They are not helped with their financial planning. However, the hon. Lady said that she would keep the matter under review. Just because she has received one representation on the issue, that does not mean that it was a bad representation.
	Amendments Nos. 18 and 19 are about the limit of 50 scheme members. The Minister has not produced any evidence of a problem. She has asserted that there is a problem and has asserted also a general proposition about mortality risk for schemes with fewer than 50 members, but I have not seen any data, any evidence or any consultation paper. It seems that there is only a general view that perhaps this would be a good moment to introduce the provision. Although the Minister tried bravely to draw a distinction between the tax rationale and the protection rationale for so proceeding, it is basically a protection rationale.
	The hon. Lady repeated what she said in Committee, which was that the Department for Work and Pensions is working on the matter and she will see what it comes up with and then reconsider the position. I would argue, as I did previously, that that is putting the cart before the horse. Let us see what the Department with primary responsibility for pension protection comes up with, and then see whether the Inland Revenue needs to do anything. The Inland Revenue is gold plating. It is putting in a requirement when it is not sure that it will be necessary. Who knows, in a year's time, with the next Finance Bill, we could find that the provision is removed, never having been law in terms of applying to schemes in practice. We shall see. At least the hon. Lady will take another look at what another Department does, which will be a first for a Treasury Minister.
	I move on to the remaining amendments. I did not say that the Brethren were not happy with what the Government have done. I went to some lengths to say how pleased they were, and read out that they praised the Financial Secretary, my hon. Friend the Member for Arundel and South Downs (Mr. Flight) and other of my hon. Friends who, over a number of years, have advanced their arguments. I made it clear also that I was not trying to reopen the debate about whether it should be 70 per cent. of an annuity or 100 per cent. I had the feeling that the Minister's speech had been written before she listened to my speech, which was about a different point. It was about the age of 75, and about the fact that 70 per cent. applies to an annuity even by 75, notwithstanding the fact that the person may be 80, 85 or 90. I remind the hon. Lady that the Association of Consulting Actuaries felt that the provision was far too penal and would unfairly discriminate against religious groups. It felt also that the protection provided by both the 70 per cent. requirement and the annual review was more than adequate to protect the interests of the Exchequer. I felt that the hon. Lady did not deal with the substance of my argument, but there we go. Such is life.
	I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.

DEFERRED DIVISION

Mr. Deputy Speaker: I must announce the result of the deferred Division on the Question of civil aviation. The Ayes were 248, the Noes were 138, so the Ayes have it.
	[The Division List is published at the end of today's debates.]

Finance Bill

Question again proposed.

Schedule 29
	  
	Registered pension schemes: authorised pensionssupplementary

Amendments made: No. 112, in page 455, line 41, at beginning insert
	'For the purposes of this Part'.
	No. 113, in page 461, line 18, at beginning insert
	'For the purposes of this Part'.[Dawn Primarolo.]

Clause 166
	  
	Recognised transfers

Amendments made: No. 114, in page 153, line 33, leave out
	'recognised overseas pension scheme which is not a registered'
	and insert 'qualifying recognised overseas'.
	No. 115, in page 153, line 35, at end insert
	'(2)   For the purposes of this Part a recognised overseas pension scheme is a qualifying recognised overseas pension scheme if
	(a)   the scheme manager has given to the Inland Revenue notification that it is a recognised overseas pension scheme and has provided any such evidence that it is a recognised overseas pension scheme as the Inland Revenue may require,
	(b)   the scheme manager has undertaken to the Inland Revenue to inform the Inland Revenue if it ceases to be a recognised overseas pension scheme,
	(c)   the scheme manager has undertaken to the Inland Revenue to comply with any prescribed information requirements imposed on the scheme manager, and
	(d)   the recognised overseas pension scheme is not excluded from being a qualifying recognised overseas pension scheme by subsection (5).
	(3)   In this Part scheme manager, in relation to a pension scheme, means the person or persons administering, or responsible for the management of, the pension scheme.
	(4)   In this section prescribed information requirements means
	(a)   requirements imposed by or under regulations made by the Board of Inland Revenue to provide to the Inland Revenue any information of a description prescribed by regulations so made, and
	(b)   requirements specified by regulations so made to provide information to an authority so specified in circumstances so specified.
	(5)   A recognised overseas pension scheme is excluded from being a qualifying recognised overseas pension scheme by this subsection if the Inland Revenue has decided that
	(a)   there has been a failure to comply with any prescribed information requirements imposed on the scheme manager and the failure is significant, and
	(b)   by reason of the failure it is not appropriate that transfers of sums or assets held for the purposes of, or representing accrued rights under, registered pension schemes so as to become held for the purposes of, or to represent rights under, the recognised overseas pension scheme should be recognised transfers,
	and has notified the person or persons appearing to be the scheme manager of that decision (but subject to subsection (7) and section (Appeal against decision to exclude recognised overseas pension scheme)).
	(6)   A failure to comply with prescribed information requirements imposed on the scheme manager is significant if
	(a)   the amount of the information which has not been provided is substantial, or
	(b)   the failure to provide the information is likely to result in serious prejudice to the assessment or collection of tax.
	(7)   The Inland Revenue
	(a)   may at any time after a recognised overseas pension scheme becomes excluded from being a qualifying recognised overseas pension scheme decide that the pension scheme is to cease to be so excluded, and
	(b)   must notify the scheme manager of the decision.'.[Dawn Primarolo.]

Clause 184
	  
	Relief for contributors

Amendment made: No. 116, in page 163, line 32, after first 'contributions' insert
	', in relation to an individual and a pension scheme,'.[Dawn Primarolo.]

Clause 212
	  
	Benefit crystallisation events and amounts crystallised

Ruth Kelly: I beg to move amendment No. 117, in page 184, line 16, leave out from 'an' to end of line 19 and insert
	'increased annual rate which exceeds by more than the permitted margin the rate at which it was payable on the day on which the individual became entitled to it'.

Mr. Deputy Speaker: With this it will be convenient to discuss the following:
	Amendment No. 23, in page 184, line 20, leave out
	'The aggregate of the amount of such of the sums, and the market value of such of the assets, representing the individual's rights under the arrangement as are applied to purchase the lifetime annuity'
	and insert
	'The lesser of:
	(a)   the aggregate of the amount of such of the sums, and the market value of such of the assets, representing the individual's rights under the arrangement as are applied to purchase the lifetime annuity; and
	(b)   AAF x A'.
	Government amendment No. 119
	Amendment No. 22, in schedule 32, page 472, line 27, leave out '50 pensioner members' and insert
	'20 members or such other number of members as may be prescribed from time to time'.
	Government amendments Nos. 120 to 124.
	Amendment No. 24, in schedule 32, page 473, line 41, at end insert
	'Benefit crystallisation event 4: meaning of AAF
	14A  For the purpose of benefit crystallisation event 4 AAF is:
	(a)   in the case of a lifetime annuity which is not a level annuity, the relevant valuation factor (see section 263); and
	(b)   in the case of a lifetime annuity which is a level annuity, the factor certified from time to time by the Government Actuary to be appropriate. Benefit crystallisation event 4: meaning of A 14B  For the purpose of benefit crystallisation event 4 A is the annual amount of the lifetime annuity which will be payable to the individual in the period of 12 months beginning with the day on which the individual becomes entitled to it (assuming that it remains payable throughout that period at the rate at which it is payable on that day).'.
	Government amendments Nos. 125 and 132.

Ruth Kelly: We turn now to a group of amendments on the lifetime allowance rules. I hope that Opposition Members will welcome Government amendments Nos. 117, 119 and 120 to 124 because they concern a matter that they raised in Committee with which I sympathised in principle and agreed to look at further. I have now done so, and am pleased to introduce our amendments, which have the effect that they sought.
	When a scheme pension is increased, there may be a benefit crystallisation event, which we have discussed at length. There will be no such event, however, if the increase is within the permitted margin. The amendments ensure that the permitted margin is applied to the overall increase in the pension from the time that it commences, putting someone who receives a one-off discretionary catch-up increase in the same position as someone who receives steady annual increases in their pension. Government amendment No. 125 adds to the existing rules that prevent a benefit crystallisation event from occurring twice on the same funds. It applies when an individual has a crystallised pension in payment, then transfers their pension fund to an overseas scheme.
	Government amendment No. 132 merely clarifies the valuation rules that apply where an individual's uncrystallised rights need to be valued. It ensures that the valuation will be made in relation to someone's benefits at a specific date. I commend the Government amendments to the House. The remaining amendments on clause 212 and schedule 32 touch on points raised by Opposition Members in Committee.
	Amendment No. 22 is another attempt to dilute the 50-member rule. To recap, that rule allows schemes to increase the value of pensions in payment above the permitted margin without creating a benefit crystallisation event, but only if the scheme has at least 50 members, all of whom benefit from that increase. That anti-avoidance rule acts as a curb on small schemes, giving generous pension increases to a small number of retired members without being caught by the lifetime allowance. Reducing the threshold to 20, as suggested by Opposition Members, would weaken the rule. I admit that no threshold is obviously right, and one could go round in circles arguing about whether 50, 30 or 60 is the appropriate number. We could spend hours on that, but we believe that 50 is about the right level to prevent circumvention of the lifetime allowance test. Hon. Members may be reassured to learn that that was announced in the second consultation document and has elicited very little comment.
	Amendments Nos. 23 and 24 to clause 212 and schedule 32 deal with the rules on quantifying the value of an individual's pension fund at each benefit crystallisation event, particularly the rule for valuing a lifetime annuity. They seek to change the way in which lifetime annuities are valued at benefit crystallisation events and use the lower purchase price of the annuity and the amount given by applying a factor of 20 to the first year's annuity payments, or a different factor if the annuity does not increase year on year. The aim of the amendments is for people with large money purchase funds to receive a pension income equal to the maximum that a final salary scheme could provide without triggering the lifetime allowance charge. We discussed that at length in Committee, when I explained that the facility would be available if a scheme pension was used instead.
	The amendments miss the point of the relevant valuation factor. We are not introducing the factor as a means of favouring defined benefit schemes, nor do we believe that that would be the effect. We are using it as a simple valuation mechanism where there is no identifiable capital amount to use. Where such an identifiable capital amount exists, it is right to use it as the most accurate, simple and straightforward way to value the pension fund and the actuarial profession, which contributed to the consultation process, supports that approach.
	Moreoverhon. Members may find this argument more persuasivethe amendments would open up a huge avoidance loophole. They allow a non-level annuity to be valued at 20:1 based on the first year's annuity payments. That would allow an individual to set up an annuity that paid an artificially low income for the first year, keeping the amount crystallised below the lifetime allowance. Later years' payments could then be boosted to an unlimited extent without being tested against the lifetime allowance, which is a hugely attractive tax loophole. I trust that the hon. Member for Tatton (Mr. Osborne) agrees that we cannot afford to open up such avoidance routes and, even if he does not accept the principled arguments, will not press his amendments.

George Osborne: May I say how sorry I am about the deferred Division, because it affects your constituency, Mr. Deputy Speaker? Perhaps that is not in order.
	I welcome the Government amendments, because the Government have adopted our proposal in Committee. I have been in Committees since the beginning of the yearsuch is the life that I have led for the past six months. Occasionally, one tables an amendment and the Government say, Yes, great idea, but they deny one the chance to change the law there and then by going away to rewrite the amendment. Nevertheless, I am delighted that they listened to us and are changing the Bill accordingly.
	The Financial Secretary took a leaf from the Prime Minister's book and launched a pre-emptive strike on my amendments. Like the Government amendments, amendment No. 22 applies to schedule 32 and the crystallisation of benefits. Schedule 32 is important because the amount crystallised is tested against the lifetime allowance. Again, the Financial Secretary did not advance strong arguments why a special rule should apply to schemes with fewer than 50 pensioner membersshe turned that point round by referring to the exception for schemes with more than 50 pensioner members. She did not give us a clear idea why the figure should be 50 and admitted that it is, at best, a guess.
	The Financial Secretary's main argument, which she advanced today and has advanced previously, concerns the potential for tax avoidance or a scam. The example that she gave in Committee was based on a scheme with only two members. We believe that it is more than adequate to require the scheme to have at least 20 members, as my amendment proposes, and to give the Inland Revenue some flexibility by incorporating a device by which it can change that figure if it senses that it will become a vehicle for tax abuse. The amendment makes provision for it to close that loophole.
	Amendments Nos. 23 and 24 attempt to tackle what remains the greatest flaw in these pensions tax proposalsthe unequal treatment of defined benefit and defined contribution schemes. The Financial Secretary repeatedly denied that in Committee, but the facts speak for themselves. She cannot get around the basic fact that, under these proposals, a person with a defined benefit pension can have a substantially larger pension income than a person with a defined contribution pension. The Financial Secretary shakes her head. I therefore suggest that after tonight's awards ceremony she should log on to the Financial Services Authority's website. That is what I did last night to check out what a 60-year-old man who is a non-smokerI am sorry to disappoint my hon. Friend the Member for Arundel and South Downs (Mr. Flight), but he gets a much better annuity than the rest of ushas a spouse three years younger, and is looking for a 50 per cent. survivor's spouse pension that rises with inflation and has a five-year guarantee, could buy with 1.5 million. In other words, I tried to devise what many defined benefit schemes offer, putting some pretty generous things into the package as I did so. When I carried out a similar exercise in Committee, the hon. Member for Wolverhampton, South-West (Rob Marris) picked me up on putting in a two-thirds survivor's pension, which he said was too generous, so I reduced it to 50 per cent. to satisfy him, should he be here.
	In calculating those figures on the website, which is quite easy to do, I used the bestnot the worstannuity rate on offer from a major provider, which was the Prudential. I found that the 60-year-old could buy a pension that pays him 60,264 a year. If he was 55, which would be the minimum retirement age, he could get a pension of 53,496 for his 1.5 million defined contribution pension pot. However, if he was in a defined benefit scheme he could draw 75,000 or morein other words, almost 50 per cent. higher than what was available to the 55-year-old with a defined contribution scheme. That is a simple fact that the Financial Secretary cannot deny and which exposes the truththat there is one regime for defined contribution schemes and another for defined benefit schemes.
	The Financial Secretary said in Committee, and has said here, Well, of course people can always, in effect, go off and buy a defined benefit scheme, because they can convert their defined contribution scheme to a defined benefit scheme. I am not sure why the Government should rely on the market to address deficiencies in their legislation: they should ensure in the first place that it does not discriminate between defined benefit and defined contribution pensions.
	In Committee, we tried to value defined contribution and defined benefit pensions in exactly the same way by multiplying the actual pension available; after all, most people will not go into the detail as we have, but focus on the pension income that is actually available to them. We suggested multiplying that actual pension income available to the individual, whether on a defined contribution scheme or a defined benefit scheme, by 20 and testing it against the lifetime allowance. That meant that an individual could have had a pension income of 75,000 a year from a defined contribution annuity purchased via a defined contribution pension, as well as from a defined benefit scheme.
	The Government rejected those amendments in Committee and we have therefore tried a new approach of offering an underpin so that people with a defined contribution pension can have the pension pot valued in the way in which the Bill currently sets out or by multiplying the available annuityA in my equationby an appropriate actuarial factor, which is represented by AAF. Conservative Members can devise equations, too. That factor would be 20 for a lifetime annuity that increases, for example, with inflation or through being related to an asset value such as risk profits annuity, and less than 20 for a flat lifetime annuity, as defined by the Government Actuary. The latter would be initially higher than an increasing annuity.
	The Financial Secretary claims that there is a great flaw in our scheme in that it creates a tax avoidance loophole that would enable someone to have an artificially low pension and subsequently increase it. If that is the caseI am happy to take that on adviceshe is more than welcome to go away and consider my amendments, which could easily be tweaked to get around the problem, for example, through different definitions of types of annuity and their treatment. I should be more than happy for her to do that and table relevant amendments to next year's Finance Bill.
	If the Financial Secretary is right that the Bill does not treat defined benefit schemes unfairly, she should not mind placing an underpin in the measure because, she would argue, it is not required. However, if the Government turn out to be wrongI suspect that they willthe underpin will act as a guarantee.
	Only a relatively small number of people will have 1.5 million. The pension incomes that we are considering55,000, 65,000 or 75,000 a yearare much greater than the pension incomes of almost everyone in the country and most of the people whom we represent. However, the Government are conveying a signal that they will treat defined contribution schemes differently from defined benefit schemes. Many people in the country believe that we in the public sectorthere is an MPs' final salary schemefeather our nests with those generous schemes while the final salary schemes of those in the private sector have closed and been replaced with money purchase arrangements.
	A survey by JPMorgan Fleming showed that 61 per cent. of the top 350 pension schemes have closed or restricted availability to defined benefit schemes and 60 per cent. offer defined contribution schemes. They are almost exclusively in the private sector. The Bill will confirm a suspicion that there is one rule for us and another rule for the rest of the country. That is the wrong message to send when there is a general perception that pensions are in crisis and people are not saving enough for their retirement. There is a general view that the public sector is insulating itself against the changes and problems.
	We should be scrupulous in our legislation in emphasising that defined contribution schemes are not discriminated against but treated equally by the Government, the state and the Inland Revenue. That is not the case in the Bill as it stands and it should be changed.

Howard Flight: rose

Mr. Deputy Speaker: Order. It is somewhat unusual for two Front-Bench spokesmen of the same party to speak on the same group when we have had no intervening debate that needs winding up. It would be inappropriate.

Ruth Kelly: I look forward to responding to the points that the hon. Member for Tatton (Mr. Osborne) made. First, I shall deal with the 50-member rule. As he made clear, he knows that the 50-member rule for providing an annuity to ensure that tax relief is used to grant a secure income for life is altogether different from what he referred to. I do not accept that there will be confusion. The measure is clear: the rules have different purposes.
	I do not accept that the 20:1 valuation factor gives a more generous result to defined benefit schemes. The factor has been agreed, with consensus from the pensions industry, as providing a broadly accurate result for valuing defined benefit pensions. With defined contribution schemes, there is an identifiable amount available for the provision of benefits to the member, so it is possible to value pension rights accurately using that amount. With defined benefit schemes, that is simply not possible because there is no identifiable amount, so it has been agreed that the valuation factor of 20:1 provides a broadly accurate equivalent.
	I accept that using two different valuation methods will inevitably produce slight tax differences. Whether they favour one individual over another in any particular year will depend on a variety of factors. If the hon. Gentleman had proposed a different ageperhaps 65, instead of 55 or 60, for examplehe might have come up with a different result. If investment growth rates or annuity rates were to differ, that too would produce different results.
	The valuation factor is a broadly accurate method of valuing defined benefit pensions. However, if any defined contribution schemes feel that the 20:1 valuation would give them an advantage, they may offer scheme members a scheme pension valued at 20:1 as an alternative. Indeed, any individual who wishes to access the 20:1 valuation factor can move his pension product to the product of his choice.
	The representatives of the pension industry who were involved in designing the new simplification rules were not, at the outset, in favour of lifetime annuities being paid at 20:1, and they are still not in favour of their being valued in that way. They accept that, because there is no pot in a defined benefit arrangement, some sort of approximation must be used to value its capital worth, and the single factor is indeed an approximation, but it achieves that end. Those people are highly experienced representatives of the pension industry and they are firmly of the view that, when there is an identifiable potas in the case of a lifetime annuityit is that pot that should be taken as the capital value to be tested against the lifetime allowance. That is the simplest and most accurate method. It does not seem sensible to us, or to them, to turn a real capital amount into a notional one.

Howard Flight: Will the Minister tell us what is the difference between a member of a pension scheme with fewer than 50 members who gets an annuity when they retire and someone with a money purchase pension who buys an annuity when they retire? Is she aware of any insurance company that offers some kind of magic formula that puts a defined benefit label on to a defined contribution scheme? I think that she will find that no such product exists. There is no difference between a bought annuity and a defined contribution pension.

Ruth Kelly: I agree that such products may not exist yet, because there is no demand for them. However, as I said in Committee, I firmly believe that there is a market for this kind of financial product. It is not for me to tell the market what to do, but if there is a market for such a product, I am sure that the market will supply it. If not, presumably it will not. The Revenue's contacts in the pensions industry have confirmed that this is also their expectation.
	We could continue to debate this matter at length, but we will not know the answer unless someone identifies a demand and proceeds to provide such a product. I would expect that any such demand will be met, and I am sure that the hon. Gentleman would accept that that is likely to be the case, given his feelings on the matter. In that case, the unfairness that he supposes to exist, and which I refute, will not exist at all. On that basis, perhaps he will acknowledge that his amendments are unnecessary.
	Amendment agreed to.

Clause 212
	  
	Benefit crystallisation events and amounts crystallised

Amendment made: No. 118, in page 184, line 44, at end insert 'qualifying'.[Dawn Primarolo.]

Schedule 32
	  
	Registered pension schemes: benefit crystallisation eventssupplementary

Amendments made: No. 119, in page 472, line 27, leave out from 'that' to end of line 38 and insert
	'at the time when the annual rate of the individual's pension is increased there are at least 50 pensioner members of the pension scheme, and
	(b)   all the scheme pensions being paid under the pension scheme to all the pensioner members of the pension scheme are at that time increased at the same rate.'.
	No. 120, in page 473, line 2, leave out 'its previous rate' and insert
	'the rate at which it was payable on the day on which the individual became entitled to it'.
	No. 121, in page 473, line 6, leave out
	'pension was first payable at the previous rate'
	and insert
	'individual became entitled to the pension'.
	No. 122, in page 473, line 20, leave out
	'first month in which the pension was payable at the previous rate'
	and insert
	'month in which the individual became entitled to the pension'.
	No. 123, in page 473, line 30, leave out 'its previous rate' and insert
	'the rate at which it was payable on the day on which the individual became entitled to it'.
	No. 124, in page 473, line 38, leave out from 'is' to end of line 40 and insert
	'(subject to sub-paragraph (2)) the amount by which
	(a)   the increased annual rate of the pension, exceeds
	(b)   the rate at which it was payable on the day on which the individual became entitled to it, as increased by the permitted margin.
	(2)   But if one or more benefit crystallisation events has or have previously occurred by reason of the individual having become entitled to payment of the pension at an increased rate, XP does not include the amount crystallised by that event or the aggregate of the amounts crystallised by those events.'.
	No. 125, in page 474, line 15, at end insert
	'Benefit crystallisation event 8: prevention of overlap with other events
	18   (1)   This paragraph applies for the purposes of benefit crystallisation event 8.
	(2)   Where any of the sums or assets transferred represent the whole or part of the individual's unsecured pension fund, the amount crystallised by the event is to be reduced by the amount (or the appropriate proportion of the amount) previously crystallised on the designation of the sums or assets as available for the payment of unsecured pension.
	(3)   Where after the transfer a scheme pension to which the individual has become entitled before the transfer is to be payable out of sums or assets transferred, the amount crystallised by the event is to be reduced by the amount (or the appropriate proportion of the amount) previously crystallised in relation to the scheme pension.'.[Dawn Primarolo.]

Clause 220
	  
	Transfers from recognised overseas pension scheme: general

Amendment made: No. 126, in page 191, line 19, leave out
	'that is not a registered pension scheme'.[Dawn Primarolo.]

Clause 228
	  
	Cash balance arrangements: adjustments of closing value

Amendment made: No. 127, in page 196, line 41, after 'a' insert 'qualifying'.[Dawn Primarolo.]

Clause 232
	  
	Defined benefits arrangements: adjustments of closing value

Amendment made: No. 128, in page 199, line 11, after 'a' insert 'qualifying'.[Dawn Primarolo.]

Clause 239
	  
	Restriction of deduction for contributions by employer

Amendments made: No. 129, in page 203, line 19, at end insert
	'(c)   in respect of contributions under a qualifying overseas pension scheme in respect of an individual who is a relevant migrant member of the pension scheme in relation to the contributions,.'.
	No. 130, in page 203, leave out lines 27 to 29 and insert
	'  qualifying overseas pension scheme has the same meaning as in Schedule (Overseas pension schemes: migrant member relief) to the Finance Act 2004 (see paragraphs 5 and 6 of that Schedule);
	registered pension scheme has the same meaning as in Part 4 of that Act (see section 147 of that Act);
	relevant migrant member has the same meaning as in Schedule (Overseas pension schemes: migrant member relief) to that Act (see paragraph 4 of that Schedule);'.[Dawn Primarolo.]

Clause 243
	  
	Taxation of non-pension benefits

Amendment made: No. 131, in page 205, line 34, after 'income)' insert
	'(b)   benefits chargeable to tax by virtue of Schedule (Non-UK schemes: application of certain charges) to FA 2004 (which applies certain charges under Part 4 of that Act in relation to non-UK schemes),'.[Dawn Primarolo.]

Clause 271
	  
	Valuation assumptions

Amendment made: No. 132, in page 226, line 28, leave out 'and any benefits' and insert ', benefits and a date'.[Dawn Primarolo.]

Clause 274
	  
	Abbreviations and general index

Amendments made: No. 133, in page 230, line 33, at end insert
	
		
			  
			 'overseas pension scheme section 147(7)'. 
		
	
	No. 134, in page 231, line 18, at end insert
	
		
			  
			 'qualifying recognised overseas pension scheme section 166(2)'. 
		
	
	No. 135, in page 231, line 19, leave out '147(7)' and insert '147(8)'.
	No. 136, in page 231, line 32, at end insert
	
		
			  
			 'scheme manager section 166(3)'. 
		
	
	No. 137, in page 232, line 4, at end insert
	
		
			  
			 'short service refund lump sum charge section 201(1) 
			 special lump sum death benefits charge section 202(1)'. 
		
	
	[Dawn Primarolo.]

Schedule 34
	  
	Pension schemes etc: transitional provisions and savings

Howard Flight: I beg to move amendment No. 25, in page 489, line 20, leave out '25 x ARP' and insert
	'the aggregate of
	(a)   the amount of any lump sum paid to the individual, increased from the date of payment to 5th April 2006 by the lesser of 5% per annum and the increase in the retail prices index over that period; and
	(b)   20 x ARP'.

Mr. Deputy Speaker: With this it will be convenient to discuss the following:
	Amendment No. 26, in page 496, line 22, leave out '25 x ARP' and insert 'the aggregate of
	(a)   the amount of any lump sum paid to the individual, increased from the date of payment to 5th April 2006 by the lesser of 5% per annum and the increase in the retail prices index over that period; and
	(b)   20 x ARP'.
	Government amendments Nos. 138 to 148.

Howard Flight: In Committee, the Minister argued that a rough justice approach was needed and justifiable in taking a 25:1 ratio for pre-commencement pension valuations.
	The effect of that is virtually to force everybody to take the maximum lump sums, in order not to suffer a tax penalty. Someone who has prudently not taken a cash lump sum under one pension arrangement, when waiting to know what another pension arrangement may deliver on retirement, will suffer a major pension tax penalty for being cautious.
	The Government's thinking was that it would be too complicated to address the issue on any other basis. I put it to the Financial Secretary that it is not complicated at all. Our proposed alternative, set out in amendments Nos. 25 and 26, is both fair and simple. In essence, they replace the 25:1 ratio with a standard 20:1 computation, but add whatever is the value of any cash lump sum that has been taken, increased by the lesser of 5 per cent. per annum and the actual increase in the retail prices index over the period. That is not a difficult calculation. It means that the Government do not send potentially wrong tax messages to people, effectively insisting that they take their maximum lump sums, and nor does it discriminate unfairly against those who have not done so. We can see no logical reason why the Government should not follow that much fairer and more rational way of approaching this issue.

Ruth Kelly: I understand the purpose behind the hon. Gentleman's amendment. He seeks to introduce an accurate approach to valuing pensions that came into payment before 6 April 2006, but I would argue that it is both complex and completely unrealistic. Requiring members to obtain or retain the values and dates of all lump sum payments, over a period that may be five, 10 or even more years before April 2006, would be costly and time-consuming.
	I hope that the hon. Gentleman does not mind, but we took the liberty of asking the Association of British Insurers and the National Association of Pension Funds for their comments on his amendments. Perhaps that shows the seriousness with which we treated them. The NAPF explained to the Inland Revenue that it was content with the 25:1 factor and that extending the valuation process in the way envisaged would be difficult for scheme administrators.
	I could quote various insurance companies and their reactions to the hon. Gentleman's amendments, but I shall quote just one very large insurance company:
	We do not believe this is a practical option. We have no need for records of amounts paid out, other than to meet accounting requirements, which only affect records for the past six years. We would have to depend on the members' records, or their memories, to operate this for a cash sum, which was paid out more than six years ago. Overall, the present proposal of using a fixed factor of 25 is consistent with simplification and also consistent with the use of 20 for crystallising other pensions. The proposed change adds complexity without adding value, and is unworkable for cash sums paid more than six years ago.
	Some of the other comments are even stronger, and the general view in the pensions industry is that the suggestion is completely unworkable, although I recognise that the hon. Gentleman has put it forward in good faith as representing an accurate way of valuing pensions.
	Government amendments Nos. 138 to 148 were promised in Standing Committee, during the debate on Opposition amendment No. 396. They allow rights to transitionally protected low retirement ages to be preserved in the case of a bulk transfer of rights under a scheme in which a member has a low normal retirement age that is transitionally protected. I commend the Government amendments to the House.

Howard Flight: Indeed, we welcome the Government amendments. I was grateful that the Minister acknowledged that our proposals for calculation are the correct proposals.
	The NAPF made one or two other important suggestions, which the Government have chosen not to accept. The Government should use their own conclusions, and not follow the trade bodies of the pension providers. The Minister commented that she had spoken to those trade bodies and individual pension providers. The issue is what is in the interests of the public at large, not the interests of the industry. I entirely disagree with the comments that she quoted. Taxpayers need to know the sums they have paid or received in all sorts of circumstances. It is ludicrous to pretend that people would not know what tax-free lump sum they have taken. In terms of personal capital, it is one of the biggest events of their lifetime.
	There may be people who have more than one, two or three pension funds, but the majority have a limited number of pension funds, so knowing what tax-free lump sums they have taken is not difficult. The Minister is saying, effectively, that the industry cannot be bothered and the existing system is an easy rough and ready. I submit that it is rough justice, which is unfair to the prudent individual and unnecessary.
	This is not a matter that we intend to press to a vote, but I ask the Government to continue to think about it in the next year. They are responding, wrongly, to the interests of the industry, rather than to the interests of citizens. I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.
	Amendments made: No. 138, in page 497, line 4, leave out from beginning to end of line 8 and insert
	'(a)   the pension scheme is a protected pension scheme, and
	(b)   the retirement condition is met in relation to the member and the pension scheme.
	(1A)   A pension scheme is a protected pension scheme if condition A or condition B is met.
	(1B)   Condition A is met if
	(a)   the pension scheme was within any of paragraphs (a) to (e) of paragraph 1(1), and
	(b)   the entitlement condition is met in relation to the member and the pension scheme.
	(1C)   The entitlement condition is met in relation to the member and the pension scheme if'.
	No. 139, in page 497, line 16, leave out from beginning to 'and' in line 18 and insert
	'(3)   Condition B is met if the member is a member of the pension scheme as a result of a block transfer to it from a pension scheme (the original pension scheme) in relation to which condition A is met.
	(3A)   A transfer is a block transfer if
	(a)   it involves the transfer in a single transaction of all the sums and assets held for the purposes of, or representing accrued rights under, the arrangements under the pension scheme from which the transfer is made which relate to the member and at least one other member of that pension scheme, and
	(b)   before the transfer the member was not a member of the pension scheme to which the transfer is made.
	(3B)   The retirement condition is met in relation to the member and the pension scheme if
	(a)   the member becomes entitled to all the pensions payable to the member under arrangements under the pension scheme (to which the member did not have an actual entitlement on or before 5th April 2006) on the same date,'.
	No. 140, in page 497, line 22, leave out 'pension scheme' and insert
	'protected pension scheme on 5th April 2006 (or, where condition B is met, under the original pension scheme on that date).'.
	No. 141, in page 497, line 27, leave out from beginning to end of line 34 and insert
	'(a)   the pension scheme is a protected pension scheme, and
	(b)   the retirement condition is met in relation to the member and the pension scheme.
	(1A)   A pension scheme is a protected pension scheme if condition A or condition B is met.
	(1B)   Condition A is met if
	(a)   the pension scheme was within paragraph (f) or (g) of paragraph 1(1), and
	(b)   the entitlement condition is met in relation to the member and the pension scheme.
	(1C)   The entitlement condition is met in relation to the member and the pension scheme if'.
	No. 142, in page 497, line 40, leave out sub-paragraph (3) and insert
	'(3)   Condition B is met if the member is a member of the pension scheme as a result of a block transfer to it from a pension scheme (the original pension scheme) in relation to which condition A is met.
	(3A)   Block transfer has the same meaning as in paragraph 22(3A).
	(3B)   The retirement condition is met in relation to the member and the pension scheme if the member becomes entitled to all the pensions payable to the member under arrangements under the pension scheme (to which the member did not have an actual entitlement on or before 5th April 2006) on the same date.'.
	No. 143, in page 497, line 43, leave out 'pension scheme' and insert
	'protected pension scheme on 5th April 2006 (or, where condition B is met, under the original pension scheme on that date).'.
	No. 144, in page 502, line 20, leave out from beginning to end of line 26 and insert
	'(1)   If the pension condition is met in relation to an individual and a registered pension scheme which is a protected pension scheme, the provisions of Schedule 29 relating to pension commencement lump sums apply in relation to the individual and the pension scheme with the modifications specified in paragraph 35 (but subject to sub-paragraph (2)).
	(2)   Those provisions do not apply with those modifications if the lump sum condition and registration condition in paragraph 24 are met.
	(3)   The pension condition is that the individual becomes entitled to all the pensions payable to the individual under arrangements under the pension scheme (to which the individual did not have an actual entitlement on or before 5th April 2006) on the same date.
	(3A)   A registered pension scheme is a protected pension scheme if condition A or condition B is met.
	(3B)   Condition A is met if
	(a)   the pension scheme was within any of paragraphs (a) to (e) of paragraph 1(1), and
	(b)   on 5th April 2006 the lump sum percentage of the individual's uncrystallised rights under the pension scheme exceeded 25%.'.
	No. 145, in page 502, line 28, leave out 'relevant pension scheme' and insert
	'pension scheme on 5th April 2006'.
	No. 146, in page 502, line 36, at end insert
	'(4A)   Condition B is met if the individual is a member of the pension scheme as a result of a block transfer to it from a pension scheme (the original pension scheme) in relation to which condition A is met.
	(4B)   Block transfer has the same meaning as in paragraph 22(3A), but treating the references there to the member as references to the individual.
	(4C)   Where a pension scheme is a protected pension scheme because condition B is met, Schedule 29 as modified by paragraph 35 applies as if the protected pension scheme were the same pension scheme as the original pension scheme.'.
	No. 147, in page 504, line 42, leave out paragraph 34.
	No. 148, in page 506, line 3, leave out paragraph 36.
	No. 149, in page 510, line 43, at end insert
	'Individuals with pre-commencement entitlement to corresponding relief
	52A   (1)   This paragraph applies where the Board of Inland Revenue allow contributions made by an individual under a pension scheme as deductions under Chapter 2 of Part 5 of ITEPA 2003 for the tax year 200506 in accordance with section 355 of that Act (deductions for corresponding payments by non-domiciled employees with foreign employers).
	(2)   Where the individual makes contributions under the pension scheme for any subsequent tax year, the Board of Inland Revenue may allow the contributions as deductions under Chapter 2 of Part 5 of that Act if, as well as the Board of Inland Revenue being satisfied that the conditions in section 355 of that Act are met, the scheme manager complies with any prescribed benefit crystallisation information requirements imposed on the scheme manager.
	(3)   Schedule (Non-UK schemes: application of certain charges) applies in relation to the pension scheme and the individual as if allowing the contributions as deductions under Chapter 2 of Part 5 of ITEPA 2003 by virtue of sub-paragraph (2) were the giving of relief by virtue of Schedule (Overseas pension schemes: migrant member relief).
	(4)   Prescribed benefit crystallisation information requirements means requirements imposed by or under regulations made by the Board of Inland Revenue to provide to the Inland Revenue any information relating to events that are benefit crystallisation events in relation to the individual.
	(5)   The references in sub-paragraphs (2) and (3) to the pension scheme include a pension scheme to which there has been a block transfer from the pension scheme on or after 6th April 2006.
	(6)   Block transfer has the same meaning as in paragraph 22(3A), but treating the references there to the member as references to the individual.'.[Dawn Primarolo.]

Schedule 36
	  
	Schedule to be inserted as Schedule 19B to the Taxes Act 1988

Alex Salmond: I beg to move amendment No. 13, in page 522, line 9, leave out '6%' and insert '12%'.

Mr. Deputy Speaker: With this it will be convenient to discuss amendment No. 14, in page 523, line 33, leave out '6%' and insert '12%'.

Alex Salmond: I understand that the Economic Secretary will reply to the debate on behalf of the Government. I am interested to note that on amendments relating to oil taxation, the Government seem to abandon their area-marking role and adopt a man-to-man approach, so the Economic Secretary finds himself replying. I welcome that, as it has been productive in a number of discussions in the past and I hope it will be productive this evening. Some people may find this last debate of the Finance Bill detailed, but it is of huge importance to the oil industry and those who work in it.
	Schedule 36 contains a measure to give tax relief of 6 per cent. on capital investment to encourage exploration and appraisal drilling in the North sea. That is to be variable by Treasury order. The amendment seeks to raise that initially to 12 per cent., which we think is a much more realistic rate, allowing the welcome tax change to have the impact that everybody wants.
	The oil and gas industry is still a vital natural resource industry for Scotland and for the whole country. Only half of the available resourcesperhaps much less than halfhave thus far been extracted. It is recognised across the industry that the oil and gas industry will need to change to meet the challenge of extracting the other 50 per cent. or more that is available, but for a number of years oil and gas exploration has been slowing down. Unless exploration and appraisal drilling is done today, it is highly unlikely that the enhanced extraction of resources will occur tomorrow.
	It is worth looking at the figures for exploration and appraisal drilling. In the last full calendar year, about 40 exploration and appraisal wells were drilled in the North sea. Unfortunately, that is the lowest number since 1999; in contrast, as recently as 1996, 112 such exploration and appraisal wells were drilled. Paradoxically, despite the decline in the number of wells drilled, the exploration success rate has increased substantially. In 2002, it went up to 31 per cent., which, compared with oil provinces internationally, is an encouraging strike rate.
	Recently, some significant finds have greatly encouraged us in the belief that large discoveries can still be made in the waters around Scotland. In June 2002, it was estimated that the Buzzard field would produce 1.1 billion barrelsthe biggest such discovery for 25 years. More recently, a small independent oil company, Oilexco, said that tests showed that its new Brenda field in the Moray firth could give 150 million barrels or more.
	The exploration and appraisal drilling that has been carried out shows some encouraging trends, but the amount of such drilling is far from satisfactory. That greatly concerns me and, I am sure, the Government, as well as the 300,000 people directly or indirectly employed in the industry and the 6,000 companies that work in or produce for it. The oil industry provides about 6 per cent. of total employment in Scotland.
	This much is agreed: there is a huge reservoir of oil and gas still to be extracted from the waters around Scotland; the present rate of exploration and appraisal is unsatisfactory; and one of the challenges is to persuade some of the larger companies to relinquish acreage to some of the smaller ones, which are keen to pursue an aggressive drilling and exploration programmea point discussed last week when the all-party offshore oil and gas industry group met the Minister for Energy, E-Commerce and Postal Services.
	I am delighted that some of the most aggressive explorers, Talisman and Apache, have found facilities at Peterhead bay in my constituency, where they want to centre much of their operation. I hope, too, that some of the other small independent companies whose representatives I have shown around Peterhead bay will locate themselves at that excellent facility, which has the strategic advantage of being the nearest to most of the oil and gas fields, so there would be substantial cost advantages for independent companies that want to be based there.
	The future offers an exciting perspective. The question for us this evening, however, is whether the Government's initial moves will be substantial enough to bring about the change that we all want to see. My contention is that they will not.
	The current taxation system is inherently disadvantageous for new companies and the corporation tax changes in 2002 have compounded that situation. Existing operators share with the Government the risks of exploration, because they can offset those risks against current liabilities, but new players have to cover the full cost without tax relief until the field is on stream. The Government's proposals would counter that, but the question is whether the allowance, which covers both capital expenditure and the losses incurred in the initial phases of exploration and appraisal before the field comes on stream, is adequate to deal with the disadvantages that would be experienced by smaller, new companies coming into the sector without tax shelter.
	The 6 per cent. that the Government propose is a risk-free rate, but for new players the average cost of capital for exploration and appraisal is about 17 per cent. and can be as much as 20 to 30 per cent. The increase suggested in our amendment of an initial 12 per cent. against the likely cost of capital to new players is modest and realistic.

Andrew Tyrie: The hon. Gentleman has made several interesting allusions to the state of the industry and I do not disagree with those points, but I am not sure how connected they are to the measure that he proposes. As I understand it, the 6 per cent. rate that he wants to alter is a proxy for interest; it is a measure intended to preserve the real value of the tax losses, but he appears to be converting it into some form of tax allowance, which I do not think was ever the intention. Perhaps I have misunderstood his proposal. Could he explain?

Alex Salmond: I am not certain that the hon. Gentleman is as much in command of the subject as he thinks he is. All I am doing is changing the initial allowance, because I think that 12 per cent. is a much more realistic assessment of the cost of capital expenditure to bring about the increase in exploration and appraisal that we want to see.

Andrew Tyrie: rose

Alex Salmond: I have explained that my intention is simply to double the initial allowance to 12 per cent. The hon. Gentleman will have to take me at my word, because I now want to make some international comparisons.

Andrew Tyrie: rose

Alex Salmond: No, the hon. Gentleman must sit down.
	The issue of the interest rate is important. It is arguableindeed, I think it is beyond argumentthat it should reflect the relevant cost of capital. That will involve a risk premium, given that exploration is a particularly risky activity. The conceptual basis of my argument is recognised in countries that have moved to resource rent taxes. Typically, an interest rate used for compounding forward tax loss will involve a risk premium and a risk-free element.
	I think the Economic Secretary should pay close attention to recent experience in Australia, where the conceptual framework is highly developed. It has a petroleum resource rent tax, a cash-flow tax levelled on pre-corporation tax cash flows at a rate of 40 per cent. Allowances for all expenditures are 100 per cent. on a first-year basis. There is generally a ring fence for the tax, but the compound interest rates for expenditure vary substantially between exploration and appraisal and development.
	For exploration and appraisal, which is inherently risky, the rate is 15 per cent. real plus a long-term Government bond rate. For development expenditures, which are inherently less risky, the rate is 5 per cent. real plus long-term Government bond rate. The difference reflects the extra risk, and the higher cost of capital for exploration and appraisal. A further feature is the breach available in the ring fence for exploration and appraisal expenditures. These can be relieved against anythat is, company-widePRRT income. The compound interest factor of 15 per cent. plus thus represents the effective compensation to the new player, compared to an established one for exploration and appraisal activities.
	I find the Australian example interesting. The Australians have made a concerted and developed attempt to devise an allowance that matches the difference in experience of a new player in the sector, compared with the tax shelters available to an existing player. Notwithstanding Tory-Front Bench scepticism, that is what the amendments are designed to do. I could talk about the Norwegians, who have also made provision for the tax disadvantages experienced by new players, but as I do not think the Norwegian system is as established or as thought through as the Australian one, I shall submit the latter to the Economic Secretary's undoubted interest in these matters.
	Last year's Finance Act looked favourably on an argument advanced during the passage of the previous year's Bill, when the issue arose of whether it was possible to ensure more equitable treatment of existing infrastructure and pipelines in the North sea in order to allow new developments, particularly of gas, with the use of that infrastructure. I do not know whether the Treasury has yet had an opportunity to make a proper assessment, but early indications from the tax change are that we may well have achieved the magic bullet of taxation changes: that is, a tax reduction may well be about to increase Government revenue in the medium term. For instance, the entry of the major Statfjord field into St. Fergus strikes me as a direct and early result of that sensible tax change, with other fields perhaps very much in the pipeline.
	I hope that the Government will also look favourably on my attempt to suggest that the welcome 6 per cent. on offer is not enough to bring about the change that is desiredthat is, to match the real risk to new players with a tax allowance to equalise their position in relation to established players.
	It is not enough to persuade the existing major companies to relinquish the vast acreage and the many fallow fields that lie un-drilled or undeveloped in the North sea, although that certainly needs to be done. Given that there is a generation of new companies willing, able and anxious to come into the environment, it is also necessary to give them the opportunity to do so. For that to happen, we must make sure that the tax incentive matches the risk that they will have to bear. Given that we want high-risk activity in the North sea and in the waters around Scotland, that tax incentive, which would not cost the Government a great deal in global terms, could provide a tremendous payout by way of increased revenues in the medium term, and increased jobs and activity in the short term. The Government achieved that virtuous circle through last year's sensible taxation change; hopefully, they are prepared to consider a further such sensible change in future.

John Healey: I am very pleased to respond to the hon. Member for Banff and Buchan (Mr. Salmond). He is right: although this is the last, it is certainly not the least of the debates on this Finance Bill. The issue that he raises is indeed important, relating as it does to an industry that is of great importance to the UK economy. I pay tribute to him for championing its interests and consistently coming up with fresh proposals. I am particularly grateful to him for his welcome for the change that we are making through clause 280 and schedule 36.
	The Government share the hon. Gentleman's desire to encourage new entrants into the UK continental shelf, so that the recovery of our national oil and gas resources can be maximised wherever doing so is economically viable. The introduction of the exploration expenditure supplement complements the action being taken on other regulatory matters, and it reinforces the Government's aim to encourage new firms to enter the North sea. That policy is showing some signs of success. The response to the Department of Trade and Industry's recent 22nd licensing round has been very encouraging. Twenty of the 68 companies applying for a licence are potential new entrants, which shows that the North sea is still attracting worldwide interest.
	As the hon. Gentleman said, the purpose of the EES is to deal with a tax disadvantage that might impact on new entrants wanting to undertake exploration. The tax disadvantage arises because companies new to the North sea might not have the taxable income against which to set their 100 per cent. exploration and appraisal allowancesa point made by the hon. Member for Chichester (Mr. Tyrie). The full economic value of those allowances could be significantly eroded over time if there is no stream of profits against which they can be used in year one. The purpose of the EES is to deal with that tax disadvantage. It compensates for this loss in value by providing an annual uplift of 6 per cent. compound on the pool of unused allowances.
	The hon. Gentleman posed the question: why 6 per cent.? Six per cent. is currently judged to be the right rateto compensate for the loss in value of the allowances over time. The rationale is that the rate is consistent with current medium-term high-grade commercial borrowing rates, and with the Government's social time preference ratein other words, the discount rate applied in evaluating the use of public funds, with an allowance for inflation. The hon. Gentleman argues for a doubling of the rate, but to do so is not currently justified, according to those comparators, without going beyond the purpose of the EES, which is to deal specifically with the tax disadvantage faced by new entrants. A higher rate risks giving new entrant companies an advantage over existing North sea companies with a taxable income.

Andrew Tyrie: So far, I agree with everything that the Economic Secretary has said, but will he confirm that the purpose of the existing 6 per cent. rate is to create a level playing field between new entrants and existing operators, and that coming to some other figureremoving the 6 per cent. or doubling itwould create a bias in favour of the new entrants?

John Healey: I thought that I had already made that clear. The purpose of the special provision is to compensate for the loss in value of allowances and to put new entrants on a par with other companies that may have year one profits against which to use those allowances. To go further than 6 per cent. would be wrong in principle in relation to the purpose of the clause and would distort the market in favour of new entrants. As I said, that is not the purpose of the measure. However, we have taken the opportunity to ensure that we have the power to amend the rate quickly if the economic factors change, making it right to do so.

Alex Salmond: I do not think that there is any disagreement between the Economic Secretary and me that a 12 per cent. increase would substantially increase the advantage for new entrants, but I am not certain that that view is shared by the Tory Front Benchers. My problem is with the justification for the 6 per cent. rate, so will the Economic Secretary tell us more? It is effectively a risk-free rate, but the average capital cost for new players in respect of exploration and appraisal is at least 17 per cent.and it can be much higher. Will the Economic Secretary run over again the justification for the 6 per cent. rate, given that informed viewscertainly more informed than the views of Tory Front Bencherswould suggest that it is too low?

John Healey: As I explained to the House, the 6 per cent. rate is consistent both with medium-term, high-grade commercial borrowing rates and with the Government's own social time preference ratethe discount rate that we use for evaluating the use of public funds, with an allowance for inflation. Just to be absolutely clear, the purpose of the special relief is to compensate for the loss in the value of the capital allowance for companies that do not have profits against which to use it. It is not to compensate for additional risk or to cover the varying capital costs that different companies may have.
	The hon. Gentleman made some interesting points about policy changes in Australia. I should be grateful if he would send me the details and I will certainly look into them further. I am aware that a tax incentive for exploration was recently announced in Australia, but the country has a corporation tax rate that does not allow this sector of the industry to have 100 per cent. cover in capital allowances. In reaching an assessment, it is important to take account of the total tax system that applies to the oil and gas industry in Australia.

Alex Salmond: Can the Economic Secretary help me further by explaining what factors the Treasury will take into account, given that the provision is variable by Treasury order? In deciding whether 6 per cent. is the right rate now and whether it should be changed in the future, what factors will influence the Treasury? Unless we show some appreciation of the fact that, because it carries a very high-risk premium, oil exploration is not similar to other forms of capital investment, it seems to me that any future assessment will not be up to the job.

John Healey: Our point of difference here is that the hon. Gentleman wants to make this particular relief more generous for wider purposes. His case for doing so, however, goes beyond the purpose of the relief. As I said, it is designed to compensate for the loss of value of the available allowances. The factors that we will take into account are precisely the financial market factors that, as I have already explained, underlie our judgment that 6 per cent. is the right rate now. Those factors do not take account of the economics of the oil industry and its work in the North sea, nor the risks that it faces. I understand why the hon. Gentleman wants me to take them into account, but they fall outside the purpose of the relief in clause 280.

Rob Marris: My hon. Friend the Economic Secretary puts forward the proposition that the relief is somewhat akin to an indexation measure, such as would apply under the RPI or RPIX. However, the hon. Member for Banff and Buchan (Mr. Salmond) wants it to be related to risk. Is not that the point of dispute?

John Healey: That may be one way to put it, but one could also explain that the operation of the relief, at 6 per cent. compound interest over six non-consecutive years, means that it could be worth 41 per cent. In other words, 100 of expenditure on investment could become 141 worth of allowable tax relief.
	To summarise, the EES rectifies a specific disadvantage due to the way the tax system works in the special situation of the offshore oil and gas companies. By dealing with this issue in this way, we hope to encourage more new entrants into the North sea. This measure will ensure that such companies invest in the UK continental shelf.
	We have had a useful debate on this matter, and the hon. Member for Banff and Buchan and I are likely to have more discussions about the Australian experience. Therefore, I hope that he will be prepared to withdraw the amendment.

Alex Salmond: Yes, I look forward to that continuing dialogue. There may be conceptual differences between me and the Economic Secretary on this matter, but I am one of those who represents a constituency with a huge investment of jobs in this sector. The waters around Scotland display some of the welcome trends that the hon. Gentleman has identified, but the vast majority of development remains in the hands of a very few companies. That might be no bad thing if those companies were the best way to develop smaller accumulations. However, there is plenty of evidence that, although smaller companies want to develop accumulations in the North sea, they are unable to get the acreage or potential out of the larger companies' hands.
	To be fair, some of the larger companies have made substantial moves in that direction recently, but there remains untapped potential. Many companies want to develop the acreage but are not given the opportunity to do so. I suspect that there is no economic incentive to ensure that that acreage is developed.
	One of the difficulties of developing the North sea taxation like Topsythat is, manipulating and changing it over timeis that that gives a big advantage to companies that have tax shelters and established production in the area. I hope that the measure proposed in the Bill will be enough to redress the balance.
	The Government and the Treasury have received vast revenue from the North sea over the past 25 years, and they may well expect a windfall this year. I hope that they will be sufficiently open minded to ensure that the show is kept on the road, so that future revenue streams are guaranteed.
	I welcome the suggestion from the Economic Secretary that he and I will continue to talk about Australia and other matters. I hope that I can persuade him that more needs to be done, and that he will keep the matter under review to see how entrants match their hopes to their economic position.
	I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.

Schedule 37
	  
	Stamp duty land tax and stamp duty

Amendments made: No. 160, in page 555, line 9, at end insert
	', but disregard paragraph 9(2) (deemed reduction of rent for overlap period in case of grant of further lease)'.
	No. 161, in page 556, line 42, leave out from 'executed,' to end of line 46 and insert
	'(c)   on termination of a lease (the head lease) a sub-tenant is granted a lease (the new lease) of the same or substantially the same premises as those comprised in his original lease (the old lease)
	(i)   in pursuance of an order of a court on a claim for relief against re-entry or forfeiture, or
	(ii)   in pursuance of a contractual entitlement arising in the event of the head lease being terminated,
	   or
	(d)   a person who has guaranteed the obligations of a lessee under a lease that has been terminated (the old lease) is granted a lease of the same or substantially the same premises (the new lease) in pursuance of the guarantee.'.
	No. 162, in page 557, line 33, leave out from beginning to 'The' in line 38 and insert
	'11   (1)   This paragraph applies where
	(a)   the grant of a lease is exempt from charge by virtue of any of the provisions specified in sub-paragraph (3), or
	(b)   a lease is granted to a person as bare trustee of the grantor, with the result that the lease is treated as vested in the grantor by virtue of paragraph 3 of Schedule 16.
	(2)   The first assignment of the lease that is not exempt from charge by virtue of any of the provisions specified in sub-paragraph (3), and in relation to which the assignee does not acquire the lease as a bare trustee of the assignor, is treated for the purposes of this Part as if it were the grant of a lease by the assignor
	(a)   for a term equal to the unexpired term of the lease referred to in sub-paragraph (1), and
	(b)   on the same terms as those on which the assignee holds that lease after the assignment.
	(3)'.   
	No. 163, in page 558 , leave out lines 1 to 5.
	No. 164, in page 558, line 21, after '2(3)' insert 'or 3(2)'.
	No. 165, in page 562, line 25, at end insert
	'Reduction of rent or term
	15A   (1)   Where a lease is varied so as to reduce the amount of the rent, the variation is treated for the purposes of this Part as an acquisition of a chargeable interest by the lessee.
	(2)   Where a lease is varied so as to reduce the term, the variation is treated for the purposes of this Part as an acquisition of a chargeable interest by the lessor.'.[Dawn Primarolo.]

Clause 292
	  
	Claims not included in returns

Amendments made: No. 150, in page 251, line 27, leave out 'against the' and insert 'for relief against any'.
	No. 151, in page 251, line 31leave out 'against the double' and insert
	'for relief against any excessive'.[Dawn Primarolo.]

Clause 293
	  
	Assents and appropriations by personal representatives

Amendments made: No. 152, in page 252, line 4, after '(3)' insert
	   'Where sub-paragraph (1) does not apply because of sub-paragraph (2), the chargeable consideration for the transaction is determined in accordance with paragraph 8A(1) of Schedule 4.
	(4)'.   
	No. 153, in page 252, leave out lines 10 to 18.
	No. 154, in page 252, line 19, leave out
	'amendments made by this section are'
	and insert
	'amendment made by this section is'.[Dawn Primarolo.]

Clause 294
	  
	Charitable trusts

Amendments made: No. 155, in page 252, line 22, at end insert
	Cases where first condition not fully met
	3   (1)   This paragraph applies where (a)   a land transaction is not exempt from charge under paragraph 1 because the first condition in that paragraph is not met, but
	(b)   the purchaser (C) intends to hold the greater part of the subject-matter of the transaction for qualifying charitable purposes.
	(2)   In such a case
	(a)   the transaction is exempt from charge, but
	(b)   for the purposes of paragraph 2 (withdrawal of charities relief) disqualifying event includes
	(i)   any transfer by C of a major interest in the whole or any part of the subject-matter of the transaction, or
	(ii)   any grant by C at a premium of a low-rental lease of the whole or any part of that subject-matter,
	   that is not made in furtherance of the charitable purposes of C.
	(3)   For the purposes of sub-paragraph (2)(b)(ii)
	(a)   a lease is granted at a premium if there is consideration other than rent, and
	(b)   a lease is a low-rental lease if the annual rent (if any) does not exceed 600 a year.
	(4)   In relation to a transaction that, by virtue of this paragraph, is a disqualifying event for the purposes of paragraph 2
	(a)   the date of the event for those purposes is the effective date of the transaction;
	(b)   paragraph 2 has effect as if
	(i)   in sub-paragraph (1)(b), for at the time of there were substituted immediately before,
	(ii)   in sub-paragraph (4)(a), for at the time of there were substituted immediately before and immediately after, and
	(iii)   sub-paragraph (4)(b) were omitted.
	(5)   In this paragraph
	   qualifying charitable purposes has the same meaning as in paragraph 1;
	   rent has the same meaning as in Schedule 5 (amount of tax chargeable: rent) and annual rent has the same meaning as in paragraph 9(2) of that Schedule..'.
	No. 156, in page 252, line 22, at end insert
	'(   )   After paragraph 3 of that Schedule (inserted by subsection (1) above) insert'.
	No. 157, in page 252, line 24, leave out '3' and insert '4'.
	No. 158, in page 252, line 35, at end insert
	'(c)   the reference in paragraph 3(2)(b) to the charitable purposes of C is to those of the beneficiaries or unit holders, or any of them.'.
	No. 159, in page 252, line 35, at end insert
	'(   )   In paragraph 1(1) of that Schedule, for this paragraph substitute this Schedule.
	(   )   In paragraph 2(1) of that Schedule, for paragraph 1 (charities relief) substitute this Schedule.
	(   )   In section 81 (further return where relief withdrawn), in paragraph (c) of subsection (4) (meaning of the disqualifying event), after paragraph 2(3) insert or 3(2).
	(   )   In section 87 (interest on unpaid tax), in paragraph (c) of subsection (4) (meaning of the disqualifying event), after paragraph 2(3) insert or 3(2).'.[Dawn Primarolo.]

Schedule 39
	  
	Stamp duty and land tax: application to certain partnership transactions

Amendments made: No. 166, in page 572, line 25, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 167, in page 572, line 29, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 168, in page 572, line 31, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 169, in page 572, line 33, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 170, in page 572, line 34, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 171, in page 572, line 35, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 172, in page 572, line 38, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 173, in page 572, line 39, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 174, in page 573, line 5, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 175, in page 573, line 8, leave out from 'shall' to end of line 12 and insert
	'(subject to paragraph 11B) be taken to be equal to (RCPXMV)+(RCPXAC)
	   where
	   RCP is the relevant chargeable proportion,
	   MV is the market value of the interest transferred, and
	   AC is the actual consideration for the transaction.
	(2A)   The relevant chargeable proportion in relation to the market value of the interest transferred is (100SLP)% where SLP is the sum of the lower proportions.
	(2B)   The relevant chargeable proportion in relation to the actual consideration for the transaction is SLP% where SLP is the sum of the lower proportions.
	(2C)   Paragraph 11A provides for determining the sum of the lower proportions.'.
	No. 176, in page 573, line 13, leave out 'and (3)' and insert 'to (2C)'.
	No. 177, in page 573, line 33, after second 'the' insert 'relevant'.
	No. 178, in page 573, line 37, after second 'the' insert 'relevant'.
	No. 179, in page 573, line 41, leave out from second 'to' to end of line 43 and insert
	'(RCPXMV)+(RCPXAC)where
	RCP is the relevant chargeable proportion,
	MV is the market value of the interest transferred, and
	AC is the actual chargeable consideration other than rent.'.
	No. 180, in page 574, leave out lines 2 to 5 and insert
	'RCPXMVwhere
	RCP is the relevant chargeable proportion, and
	MV is the market value of the interest transferred.'. No. 181, in page 574, line 5, at end insert
	'(7)   The relevant chargeable proportion in relation to
	(a)   the net present value of the rent payable over the term of a lease, or
	(b)   the market value of the interest transferred,
	is (100SLP)% where SLP is the sum of the lower proportions.
	(8)   The relevant chargeable proportion in relation to the actual consideration other than rent is SLP% where SLP is the sum of the lower proportions.
	(9)   Paragraph 11A provides for determining the sum of the lower proportions.
	(10)   This paragraph is subject to paragraph 11B.'.
	No. 182, in page 574, line 5, at end insert
	'Transfer of chargeable interest to a partnership: sum of the lower proportions
	11A   (1)   The sum of the lower proportions in relation to a transaction to which paragraph 10 applies is determined as follows:
	   Step One
	   Identify the relevant owner or owners.
	   A person is a relevant owner if
	(a)   immediately before the transaction, he was entitled to a proportion of the chargeable interest, and
	(b)   immediately after the transaction, he is a partner or connected with a partner.
	   Step Two
	   For each relevant owner, identify the corresponding partner or partners.
	   A person is a corresponding partner in relation to a relevant owner if, immediately after the transaction
	(a)   he is a partner, and
	(b)   he is the relevant owner or is connected with the relevant owner.
	   Step Three
	   For each relevant owner, find the proportion of the chargeable interest to which he was entitled immediately before the transaction.
	   Apportion that proportion between any one or more of the relevant owner's corresponding partners.
	   Step Four
	   Find the lower proportion for each person who is a corresponding partner in relation to one or more relevant owners.
	   The lower proportion is
	(a)   the proportion of the chargeable interest attributable to the partner, or
	(b)   if lower, the partner's partnership share immediately after the transaction.
	   The proportion of the chargeable interest attributable to the partner is
	(a)   if he is a corresponding partner in relation to only one relevant owner, the proportion (if any) of the chargeable interest apportioned to him (at Step Three) in respect of that owner;
	(b)   if he is a corresponding partner in relation to more than one relevant owner, the sum of the proportions (if any) of the chargeable interest apportioned to him (at Step Three) in respect of each of those owners.
	   Step Five
	   Add together the lower proportions of each person who is a corresponding partner in relation to one or more relevant owners.
	   The result is the sum of the lower proportions.
	(2)   For the purposes of this paragraph persons who are entitled to a chargeable interest as beneficial joint tenants (or, in Scotland, as joint owners) shall be taken to be entitled to the chargeable interest as beneficial tenants in common (or, in Scotland, as owners in common) in equal shares. Transfer of chargeable interest to a partnership consisting wholly of bodies corporate 11B   (1)   This paragraph applies where
	(a)   there is a transaction to which paragraph 10 applies;
	(b)   immediately after the transaction all the partners are bodies corporate;
	(c)   the sum of the lower proportions is 75 or more.
	(2)   Paragraphs 10 and 11 have effect with these modifications.
	(3)   In paragraph 10, for sub-paragraphs (2) to (2C) substitute
	(2)   The chargeable consideration for the transaction shall be taken to be equal to the market value of the interest transferred..
	(4)   In paragraph 10(4), for sub-paragraphs (2) to (2C) substitute sub-paragraph (2).
	(5)   In paragraph 11, omit sub-paragraphs (3) and (7) to (9).
	(6)   In paragraph 11, for sub-paragraph (4) substitute
	(4)   If there is chargeable consideration other than rent, that chargeable consideration shall be taken to be equal to the market value of the interest transferred..
	(7)   In paragraph 11, for sub-paragraph (5)(b) substitute
	(b)   that chargeable consideration shall be taken to be equal to the market value of the interest transferred..
	(8)   Paragraph 11A provides for determining the sum of the lower proportions.'.
	No. 183, in page 574, leave out lines 7 to 11 and insert
	'12   (1)   This paragraph applies where
	(a)   there is a transfer of an interest in a partnership;
	(b)   consideration is given for the transfer;
	(c)   the relevant partnership property includes a chargeable interest.
	(1A)   The transfer
	(a)   shall be taken for the purposes of this Part to be a land transaction;
	(b)   is a chargeable transaction.
	(1B)   '.
	No. 184, in page 574, line 23, leave out 'interest in land' and insert 'chargeable interest'.
	No. 185, in page 574, line 41, leave out 'three' and insert 'four'.
	No. 186, in page 574, line 44, after 'no' insert 'chargeable'.
	No. 187, in page 575, line 2, after 'any' insert 'chargeable'.
	No. 188, in page 575, leave out lines 6 to 16 and insert
	'(4)   The third condition is that
	(a)   the term of the lease is 5 years or less, or
	(b)   if the term of the lease is more than 5 years
	(i)   the lease provides for the rent payable under it to be reviewed at least once in every 5 years of the term, and
	(ii)   the rent payable under the lease as a result of a review is required to be a market rent at the review date.
	(4A)   The fourth condition is that there has been no change to the lease since it was granted which is such that, immediately after the change has effect, the rent payable under the lease is less than a market rent.'.
	No. 189, in page 575, line 36, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 190, in page 576, line 5, after 'transfer' insert '
	(a)   shall be taken for the purposes of this Part to be a land transaction;
	(b)   '.
	No. 191, in page 576, line 27, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 192, in page 576, leave out lines 32 to 37.
	No. 193, in page 576, line 38, leave out from 'shall' to end of line 41 and insert
	   '(subject to paragraph 17E) be taken to be equal to (RCPXMV)+(RCPXAC)where
	RCP is the relevant chargeable proportion,
	MV is the market value of the interest transferred, and
	AC is the actual consideration for the transaction.
	(3A)   The relevant chargeable proportion in relation to the market value of the interest transferred is (100SLP)% where SLP is the sum of the lower proportions.
	(3B)   The relevant chargeable proportion in relation to the actual consideration for the transaction is SLP% where SLP is the sum of the lower proportions.
	(3C)   Paragraph 17A provides for determining the sum of the lower proportions.'.
	No. 194, in page 576, line 42, leave out 'sub-paragraph (3)' and insert 'sub-paragraphs (3) to (3C)'.
	No. 195, in page 577, line 12, after second 'the' insert 'relevant'.
	No. 196, in page 577, line 16, after second 'the' insert 'relevant'.
	No. 197, in page 577, line 20, leave out from second 'to' to end of line 22 and insert
	   ' (RCPXMV)+(RCPXAC)where
	RCP is the relevant chargeable proportion,
	MV is the market value of the interest transferred, and
	AC is the actual chargeable consideration other than rent.'.
	No. 198, in page 577, leave out lines 28 to 30 and insert
	   ' RCPXMVwhere
	RCP is the relevant chargeable proportion, and
	MV is the market value of the interest transferred.'.
	No. 199, in page 577, line 30, at end insert
	'(7)   The relevant chargeable proportion in relation to
	(a)   the net present value of the rent payable over the term of a lease, or
	(b)   the market value of the interest transferred,
	is (100SLP)% where SLP is the sum of the lower proportions.
	(8)   The relevant chargeable proportion in relation to the actual consideration other than rent is SLP% where SLP is the sum of the lower proportions.
	(9)   Paragraph 17A provides for determining the sum of the lower proportions.
	(10)   This paragraph is subject to paragraph 17E.'.
	No. 200, in page 577, line 30, at end insert
	'Transfer of chargeable interest from a partnership: sum of the lower proportions
	17A   (1)   The sum of the lower proportions in relation to a transaction to which paragraph 16 applies is determined as follows:
	   Step One
	   Identify the relevant owner or owners.
	   A person is a relevant owner if
	(a)   immediately after the transaction, he is entitled to a proportion of the chargeable interest, and
	(b)   immediately before the transaction, he was a partner or connected with a partner.
	   Step Two
	   For each relevant owner, identify the corresponding partner or partners.
	   A person is a corresponding partner in relation to a relevant owner if, immediately before the transaction
	(a)   he was a partner, and
	(b)   he was the relevant owner or was connected with the relevant owner.
	   Step Three
	   For each relevant owner, find the proportion of the chargeable interest to which he is entitled immediately after the transaction.
	   Apportion that proportion between any one or more of the relevant owner's corresponding partners.
	   Step Four
	   Find the lower proportion for each person who is a corresponding partner in relation to one or more relevant owners.
	   The lower proportion is
	(a)   the proportion of the chargeable interest attributable to the partner, or
	(b)   if lower, the partnership share attributable to the partner.
	   The proportion of the chargeable interest attributable to the partner is
	(a)   if he is a corresponding partner in relation to only one relevant owner, the proportion (if any) of the chargeable interest apportioned to him (at Step Three) in respect of that owner;
	(b)   if he is a corresponding partner in relation to more than one relevant owner, the sum of the proportions (if any) of the chargeable interest apportioned to him (at Step Three) in respect of each of those owners.
	   Paragraph 17B provides for determining the partnership share attributable to the partner.
	   Step Five
	   Add together the lower proportions of each person who is a corresponding partner in relation to one or more relevant owners.
	   The result is the sum of the lower proportions.
	(2)   For the purposes of this paragraph persons who are entitled to a chargeable interest as beneficial joint tenants (or, in Scotland, as joint owners) shall be taken to be entitled to the chargeable interest as beneficial tenants in common (or, in Scotland, as owners in common) in equal shares. Transfer of chargeable interest from a partnership: partnership share attributable to partner 17B   (1)   This paragraph provides for determining the partnership share attributable to a partner for the purposes of paragraph 17A(1) (see Step Four).
	(2)   Paragraph 17C applies for determining the partnership share attributable to a partner where
	(a)   the effective date of the transfer of the relevant chargeable interest to the partnership was before 20th October 2003, or
	(b)   the effective date of the transfer of the relevant chargeable interest to the partnership was on or after that date and
	(i)   the instrument by which the transfer was effected has been duly stamped with ad valorem stamp duty, or
	(ii)   any tax payable in respect of the transfer has been duly paid under this Part.
	(3)   Where the effective date of the transfer of the relevant chargeable interest to the partnership was on or after 20th October 2003 but neither of the conditions in sub-paragraphs (i) and (ii) of sub-paragraph (2)(b) is met, the partnership share attributable to the partner is zero.
	(4)   The relevant chargeable interest is
	(a)   the chargeable interest which ceases to be partnership property as a result of the transaction to which paragraph 16 applies, or
	(b)   where the transaction to which paragraph 16 applies is the grant or creation of a chargeable interest, the chargeable interest out of which that interest is granted or created. 17C   (1)   Where this paragraph applies, the partnership share attributable to the partner is determined as follows:
	   Step One
	   Find the partner's actual partnership share on the relevant date.
	   In a case falling within paragraph 17B(2)(a), the relevant date
	(a)   if the partner was a partner on 19th October 2003, is that date;
	(b)   if the partner became a partner after that date, is the date on which he became a partner.
	   In a case falling within paragraph 17B(2)(b), the relevant date
	(a)   if the partner was a partner on the effective date of the transfer of the relevant chargeable interest to the partnership, is that date;
	(b)   if the partner became a partner after that date, is the date on which he became a partner.
	   Step Two
	   Add to that partnership share any increases in the partner's partnership share which
	(a)   occur in the period starting on the day after the relevant date and ending immediately before the transaction to which paragraph 16 applies, and
	(b)   count for this purpose.
	   The result is the increased partnership share.
	   An increase counts for the purpose of paragraph (b) only if
	(i)   where the transfer which resulted in the increase took place on or before the date on which the Finance Act 2004 was passed, the instrument by which the transfer was effected has been duly stamped with ad valorem stamp duty under the enactments relating to stamp duty;
	(b)   where the transfer which resulted in the increase took place after that date, any tax payable in respect of the transfer has been duly paid under this Part.
	   Step Three
	   Deduct from the increased partnership share any decreases in the partner's partnership share which occur in the period starting on the day after the relevant date and ending immediately before the transaction to which paragraph 16 applies.
	   The result is the partnership share attributable to the partner.
	(2)   If the effect of applying Step Three would be to reduce the partnership share attributable to the partner below zero, the partnership share attributable to the partner is zero.
	(3)   In a case falling within paragraph 17B(2)(a), if the partner ceased to be a partner before 19th October 2003, the partnership share attributable to the partner is zero.
	(4)   In a case falling within paragraph 17B(2)(b), if the partner ceased to be a partner before the effective date of the transfer of the relevant chargeable interest to the partnership, the partnership share attributable to the partner is zero.
	(5)   Paragraph 17B(4) (relevant chargeable interest) applies for the purposes of this paragraph. Transfer of chargeable interest from a partnership to a partnership 17D   (1)   This paragraph applies where
	(a)   there is a transfer of a chargeable interest from a partnership to a partnership, and
	(b)   the transfer is both
	(i)   a transaction to which paragraph 10 applies, and
	(ii)   a transaction to which paragraph 16 applies.
	(2)   Where none of the chargeable consideration for the transaction is rent
	(a)   paragraphs 10(2) to (2C) and 16(3) to (3C) do not apply;
	(b)   the chargeable consideration for the transaction shall be taken to be what it would have been if paragraph 10(2) to (2C) had applied or, if greater, what it would have been if paragraph 16(3) to (3C) had applied.
	(3)   Where the whole or part of the chargeable consideration for the transaction is rent
	(a)   paragraphs 11 and 17 do not apply;
	(b)   the chargeable consideration for the transaction shall be taken to be what it would have been if paragraph 11 had applied or, if greater, what it would have been if paragraph 17 had applied. Transfer of chargeable interest from a partnership consisting wholly of bodies corporate 17E   (1)   This paragraph applies where
	(a)   there is a transaction to which paragraph 16 applies;
	(b)   immediately before the transaction all the partners are bodies corporate;
	(c)   the sum of the lower proportions is 75 or more.
	(2)   Paragraphs 16, 17 and 17D have effect with these modifications.
	(3)   In paragraph 16, for sub-paragraphs (3) to (3C) substitute
	(3)   The chargeable consideration for the transaction shall be taken to be equal to the market value of the interest transferred..
	(4)   In paragraph 16(4), for sub-paragraphs (3) to (3C) substitute sub-paragraph (3).
	(5)   In paragraph 17, omit sub-paragraphs (3) and (7) to (9).
	(6)   In paragraph 17, for sub-paragraph (4) substitute
	(4)   If there is chargeable consideration other than rent, that chargeable consideration shall be taken to be equal to the market value of the interest transferred..
	(7)   In paragraph 17, for sub-paragraph (5)(b) substitute
	(b)   that chargeable consideration shall be taken to be equal to the market value of the interest transferred..
	(8)   In paragraph 17D(2)
	(a)   for paragraphs 10(2) to (2C) and 16(3) to (3C) substitute paragraphs 10(2) and 16(3);
	(b)   for paragraph 10(2) to (2C) substitute paragraph 10(2);
	(c)   for paragraph 16(3) to (3C) substitute paragraph 16(3).
	(9)   Paragraph 17A provides for determining the sum of the lower proportions.'.
	No. 201, in page 577, line 31, leave out from beginning to end of line 21 on page 579.
	No. 202, in page 579, line 26, after 'But' insert
	'(subject to paragraphs 20A to 20C)'.
	No. 203, in page 579, line 27, at end insert
	'Application of disadvantaged areas relief
	20A   (1)   Schedule 6 (disadvantaged areas relief) applies to the transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 12 or 15 with these modifications.
	(2)   For paragraph 3 substitute 3   (1)   This Part of this Schedule applies to a transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 12 of Schedule 15 if every chargeable interest comprising the relevant partnership property is a chargeable interest in relation to land that is wholly situated in a disadvantaged area.
	(2)   This Part of this Schedule applies to a transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 15 of Schedule 15 if the subject matter of the land transfer is a chargeable interest in relation to land that is wholly situated in a disadvantaged area..
	(3)   In paragraph 5, for sub-paragraphs (2) to (4) substitute
	(2)   If the relevant consideration does not exceed 150,000 the transaction is exempt from charge..
	(4)   For paragraph 6 substitute 6   (1)   This paragraph applies where the land is partly non-residential property and partly residential property.
	(2)   The non-residential proportion of the chargeable consideration for the transaction does not count as chargeable consideration.
	(3)   The non-residential proportion is the proportion of the market value of the relevant property that, on a just and reasonable apportionment, is attributable to land that is non-residential property.
	(4)   If the relevant consideration does not exceed 150,000, none of the residential proportion of the chargeable consideration counts as chargeable consideration.
	(5)   The residential proportion is the proportion of the market value of the relevant property that, on a just and reasonable apportionment, is attributable to land that is residential property..
	(5)   For paragraph 7 substitute 7   (1)   This Part of this Schedule applies to a transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 12 of Schedule 15 if
	(a)   some (but not all) of the chargeable interests comprising the relevant partnership property are chargeable interests in relation to land that is wholly situated in a disadvantaged area, or
	(b)   any chargeable interest comprised in the relevant partnership property is a chargeable interest in relation to land that is partly situated in a disadvantaged area and partly situated outside such an area.
	(2)   This Part of this Schedule applies to a transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 15 of Schedule 15 if the subject matter of the land transfer is a chargeable interest in relation to land that is partly situated in a disadvantaged area and partly situated outside such an area.
	(3)   In this Part
	(a)   references to the disadvantaged-area proportion are to the proportion of the market value of the relevant property that, on a just and reasonable apportionment, is attributable to land situated in a disadvantaged area;
	(b)   references to the advantaged-area proportion are to the proportion of the market value of the relevant property that, on a just and reasonable apportionment, is attributable to land that is situated outside a disadvantaged area..
	(6)   In paragraph 8, for consideration attributable to the land situated in the disadvantaged area substitute disadvantaged-area proportion of the chargeable consideration.
	(7)   In paragraph 9, for sub-paragraphs (2) to (4) substitute
	(2)   If the relevant consideration does not exceed 150,000 none of the disadvantaged-area proportion of the chargeable consideration counts as chargeable consideration..
	(8)   For paragraph 10 substitute 10   (1)   This paragraph applies where the land situated in a disadvantaged area is partly non-residential property and partly residential property.
	(2)   The non-residential proportion of the disadvantaged-area proportion of the chargeable consideration for the transaction does not count as chargeable consideration.
	(3)   The non-residential proportion is the proportion of the disadvantaged-area proportion of the market value of the relevant property that, on a just and reasonable apportionment, is attributable to land that is not residential property.
	(4)   If the relevant consideration does not exceed 150,000, none of the residential proportion of the disadvantaged-area proportion of the chargeable consideration counts as chargeable consideration.
	(5)   The residential proportion is the proportion of the disadvantaged-area proportion of the market value of the relevant property that, on a just and reasonable apportionment, is attributable to land that is residential property..
	(9)   After paragraph 11(1) insert
	(1A)   In this Schedule
	the land transfer means the transaction that is the land transfer for the purposes of paragraph 15 of Schedule 15;
	the relevant partnership property has the meaning given by paragraph 12(3) of Schedule 15;
	the relevant property
	(a)   in the case of a transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 12 of Schedule 15, means the relevant partnership property;
	(b)   in the case of a transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 15 of Schedule 15, means the subject matter of the land transfer.
	(1B)   There is a transfer of an interest in a partnership for the purposes of this Schedule if there is such a transfer for the purposes of Part 3 of Schedule 15 (see paragraph 27 of that Schedule)..
	(10)   Omit paragraphs 11(2) and 12. Application of group relief 20B   (1)   Part 1 of Schedule 7 (group relief) applies to
	(a)   a transaction to which paragraph 10 applies, and
	(b)   a transaction that is a chargeable transaction by virtue of paragraph 15,
	with these modifications.
	(2)   In paragraph 3(1)(a), for the purchaser substitute a partner who was a partner at the effective date of the relevant transaction (the relevant partner).
	(3)   In paragraph 3(1), for paragraph (b) substitute
	(b)   at the time the relevant partner ceases to be a member of the same group as the vendor (the relevant time), a chargeable interest is held by or on behalf of the members of the partnership and that chargeable interest
	(i)   was acquired by or on behalf of the partnership under the relevant transaction, or
	(ii)   is derived from a chargeable interest so acquired,
	and has not subsequently been acquired at market value under a chargeable transaction for which group relief was available but was not claimed,.
	(4)   In paragraph 3(3), for the words from the transferee company to the end substitute or on behalf of the partnership and to the proportion in which the relevant partner is entitled at the relevant time to share in the income profits of the partnership..
	(5)   In paragraph 3(4), omit the definition of relevant associated company.
	(6)   In paragraphs 4 to 6, for the purchaser (wherever appearing) substitute the relevant partner. Application of charities relief 20C   (1)   Schedule 8 (charities relief) applies to the transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 12 or 15 with these modifications.
	(2)   In paragraph 1(1), for A land transaction is exempt from charge if the purchaser is a charity substitute A transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 12 or 15 of Schedule 15 is exempt from charge if the transferee is a charity.
	(3)   In paragraph 1(2)
	(a)   for the purchaser must intend to hold the subject-matter of the transaction substitute every chargeable interest held as partnership property immediately after the transfer must be held;
	(b)   in paragraphs (a) and (b) for the purchaser substitute the transferee.
	(4)   In paragraph 1(3) for the purchaser substitute the transferee.
	(5)   In paragraph 2(1), for paragraph (b) substitute
	(b)   at the time of the disqualifying event the partnership property includes a chargeable interest
	(i)   that was held as partnership property immediately after the relevant transaction, or
	(ii)   that is derived from an interest held as partnership property at that time,.
	(6)   In paragraph 2(3)(a), for the purchaser substitute the transferee.
	(7)   In paragraph 2(3), for paragraph (b) substitute
	(b)   any chargeable interest held as partnership property immediately after the relevant transaction, or any interest or right derived from it, being used or held otherwise than for qualifying charitable purposes..
	(8)   For paragraph 2(4) substitute
	(4)   In sub-paragraphs (1) and (2) an appropriate proportion means an appropriate proportion having regard to
	(a)   the chargeable interests held as partnership property immediately after the relevant transaction and the chargeable interests held as partnership property at the time of the disqualifying event, and
	(b)   the extent to which any chargeable interest held as partnership property at that time becomes used or held for purposes other than qualifying charitable purposes..
	(9)   After paragraph 2 insert Interpretation 3   (1)   There is a transfer of an interest in a partnership for the purposes of this Schedule if there is such a transfer for the purposes of Part 3 of Schedule 15 (see paragraph 27 of that Schedule).
	(2)   Paragraph 25(1) of Schedule 15 (meaning of references to partnership property) applies for the purposes of this Schedule as it applies for the purposes of Part 3 of that Schedule..'.
	No. 204, in page 579, line 30, leave out 'interest in land' and insert 'chargeable interest'.
	No. 205, in page 579, line 33, leave out 'interest in land' and insert 'chargeable interest'.
	No. 206, in page 579, line 41, leave out
	'not a notifiable transaction unless'
	and insert
	'a notifiable transaction if (but only if)'.
	No. 207, in page 580, line 20, leave out 'paragraph 24' and insert 'paragraphs 24 and 24A'.
	No. 208, in page 580, line 26, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 209, in page 580, line 29, leave out 'interest in land' and insert 'chargeable interest'.
	No. 210, in page 580, line 44, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 211, in page 581, line 1, leave out 'interest in land' and insert 'chargeable interest'.
	No. 212, in page 581, line 4, leave out 'interest in land' and insert 'chargeable interest'.
	No. 213, in page 581, line 5, leave out 'an interest in land' and insert 'a chargeable interest'.
	No. 214, in page 581, line 6, leave out 'interest in land' and insert 'chargeable interest'.
	No. 215, in page 581, line 12, at end insert
	'24A   (1)   This paragraph applies where
	(a)   stamp duty under Part 1 of Schedule 13 to the Finance Act 1999 (transfer on sale) is chargeable on an instrument effecting a transfer of an interest in a partnership, and
	(b)   the relevant partnership property includes stock or marketable securities.
	(2)   The relevant partnership property, in relation to a transfer of an interest in a partnership, is the partnership property immediately after the transfer, other than any partnership property that was transferred to the partnership in connection with the transfer.
	(3)   The stamp duty chargeable on the instrument shall not exceed the stamp duty that would be chargeable if
	(a)   the instrument were an instrument effecting a transfer of the stock and marketable securities comprised in the relevant partnership property, and
	(b)   the consideration for the transfer were equal to the net market value of that stock and those securities immediately after the transfer, less the excluded amount.
	(4)   The excluded amount is a proportion of the net market value of that stock and those securities immediately after the transfer.
	(5)   That proportion is
	(a)   if the person acquiring the interest in the partnership was not a partner before the transfer, his partnership share immediately after the transfer;
	(b)   if he was a partner before the transfer, the difference between his partnership share before and after the transfer.
	(6)   The net market value of stock or securities at a particular date is MV - SL
	   where
	MV is the market value of the stock or securities at that date, and
	SL is the amount outstanding at that date on any loan secured solely on the stock or securities.
	(7)   If, in relation to any stock or securities, SL is greater than MV, the net market value of the stock or securities shall be taken to be nil.
	(8)   Where this paragraph applies in relation to an instrument, the instrument shall not be regarded as duly stamped unless it has been stamped in accordance with section 12 of the Stamp Act 1891.
	(9)   This paragraph shall be construed as one with the Stamp Act 1891.'.
	No. 216, in page 581, line 24, leave out first 'an interest in land' and insert 'a chargeable interest'.
	No. 217, in page 581, line 24, leave out second 'an interest in land' and insert 'a chargeable interest'.
	No. 218, in page 581, line 35, at end insert
	'Interpretation: transfer of chargeable interest from a partnership
	27A  For the purposes of this Part of this Schedule, there is a transfer of a chargeable interest from a partnership in any case where
	(a)   a chargeable interest that was partnership property ceases to be partnership property, or
	(b)   a chargeable interest is granted or created out of partnership property and the interest is not partnership property. Interpretation: market value of leases 27B   (1)   This paragraph applies in relation to a lease for the purposes of this Part of this Schedule if
	(a)   the grant of the lease is or was a transaction to which paragraph 10 applies or applied (or a transaction to which paragraph 10 would have applied if that paragraph had been in force at the time of the grant), or
	(b)   the grant of the lease is a transaction to which paragraph 16 applies.
	(2)   In determining the market value of the lease, an obligation of the tenant under the lease is to be taken into account if (but only if)
	(a)   it is an obligation such as is mentioned in paragraph 10(1) of Schedule 17A, or
	(b)   it is an obligation to make a payment to a person.'.
	No. 219, in page 581, line 38, at end insert
	'(2)   As applied by sub-paragraph (1), that section has effect with the omission of subsection (4) (partners connected with each other).'.
	No. 220, in page 582, line 14, leave out
	'partnership transactions the effective date of which'
	and insert
	'any partnership transaction of which the effective date (within the meaning of Part 4 of the Finance Act 2003 (c. 14))'.
	No. 221, in page 582, line 19, leave out sub-paragraph (3).[Dawn Primarolo.]

Clause 299
	  
	Meaning of promoter

Amendment made: No. 222, in page 254, line 39, leave out from 'of' to end of line 40.[Dawn Primarolo.]

New Schedule 1
	  
	Overseas pension schemes: migrant member relief

Relief for members' etc.contributions 1   (1)   An individual who is a relevant migrant member of a qualifying overseas pension scheme is entitled to relief under section 184 (relief for contributions by or on behalf of members of registered pension schemes) in respect of relievable pension contributions paid during a tax year if the individual
	(a)   has relevant UK earnings chargeable to income tax for that year, (b)   is resident in the United Kingdom when the contributions are paid, and
	(c)   has notified the scheme manager of an intention to claim relief under that section.
	(2)   Section 186 (annual limit for relief under section 184) applies in relation to the aggregate of the amount of relief to which an individual is entitled under section 184 by virtue of sub-paragraph (1) and any to which the individual is so entitled apart from that sub-paragraph.
	(3)   Relief to which an individual is entitled under section 184 by virtue of sub-paragraph (1) is to be given in accordance with section 190 (relief on making of claim) (so that nothing in sections 187 to 189 applies in relation to such relief).
	(4)   Section 191 (transfer of certain shares to be treated as payment of contribution) has effect as if the references to sections 184 to 190 included sections 184 to 186 and 190 as they apply by virtue of this paragraph.
	(5)   No deduction may be allowed under Chapter 2 of Part 5 of ITEPA 2003 in accordance with section 355 of that Act (deductions for corresponding payments by non-domiciled employees with foreign employers) in respect of contributions under a pension scheme (but subject to Part 4 of Schedule 34).
	Relief for employers' contributions 2   (1)   Subsections (2) to (5) of section 192 (relief for contributions by employer) apply in relation to relevant migrant member contributions paid by an employer as in relation to contributions paid by an employer under a registered pension scheme in respect of an individual.
	(2)   Section 196 (no other relief for employers in connection with contributions) applies as if the reference to contributions under a registered pension scheme included relevant migrant member contributions. (3)   Relevant migrant member contributions means contributions paid under a qualifying overseas pension scheme in respect of an individual who is a relevant migrant member of the pension scheme in relation to the contributions.
	3  In ITEPA 2003, after section 308 insert
	308A   Exemption of contributions to overseas pension scheme
	(1)   No liability to income tax arises in respect of earnings where an employer makes contributions under a qualifying overseas pension scheme in respect of an employee who is a relevant migrant member of the pension scheme.
	(2)   In subsection (1)
	qualifying overseas pension scheme, and
	relevant migrant member,
	have the same meaning as in Schedule (Overseas pension schemes: migrant member relief) to FA 2004 (overseas pension schemes: migrant member relief).
	Meaning of relevant migrant member 4  For the purposes of this Schedule an individual who is a member of an overseas pension scheme is a relevant migrant member of the pension scheme, in relation to any contributions, if the individual
	(a)   was not resident in the United Kingdom when first a member of the pension scheme, (b)   was a member of the pension scheme at the beginning of the period of residence in the United Kingdom which includes the time when the contributions are paid,
	(c)   was, immediately before the beginning of that period of residence, entitled to tax relief in respect of contributions paid under the pension scheme under the law of the country or territory in which the individual was then resident, and
	(d)   has been notified by the scheme manager that information concerning events that are benefit crystallisation events in relation to the individual and the pension scheme will be given to the Inland Revenue.
	Meaning of qualifying overseas pension scheme 5   (1)   For the purposes of this Schedule an overseas pension scheme is a qualifying overseas pension scheme if
	(a)   the scheme manager has given to the Inland Revenue notification that it is an overseas pension scheme and has provided any such evidence that it is an overseas pension scheme as the Inland Revenue may require, (b)   the scheme manager has undertaken to the Inland Revenue to inform the Inland Revenue if it ceases to be an overseas pension scheme,
	(c)   the scheme manager has undertaken to the Inland Revenue to comply with any prescribed benefit crystallisation information requirements imposed on the scheme manager, and
	(d)   the overseas pension scheme is not excluded from being a qualifying overseas pension scheme by sub-paragraph (3).
	(2)   In sub-paragraph (1)(c) prescribed benefit crystallisation information requirements means requirements imposed by or under regulations made by the Board of Inland Revenue to provide to the Inland Revenue any information relating to events that are benefit crystallisation events in relation to members of the pension scheme who have at any time been relevant migrant members of the pension scheme.
	(3)   An overseas pension scheme is excluded from being a qualifying overseas pension scheme if the Inland Revenue has decided that
	(a)   there has been a failure to comply with any prescribed benefit crystallisation information requirements imposed on the scheme manager and the failure is significant, and
	(b)   by reason of the failure it is not appropriate that relief from tax should be given in respect of contributions under the pension scheme,
	and has notified the person or persons appearing to be the scheme manager of that decision (but subject to sub-paragraph (5) and paragraph 6).
	(4)   A failure to comply with prescribed benefit crystallisation information requirements is significant if
	(a)   the amount of information which has not been provided is substantial, or
	(b)   the failure to provide the information is likely to result in serious prejudice to the assessment or collection of tax.
	(5)   The Inland Revenue 
	(a)   may at any time after an overseas pension scheme becomes excluded from being a qualifying overseas pension scheme decide that the pension scheme is to cease to be so excluded, and
	(b)   must notify the scheme manager of the decision.
	6   (1)   This paragraph applies where an overseas pension scheme is excluded from being a qualifying overseas pension scheme by a decision of the Inland Revenue under paragraph 5(3).
	(2)   The scheme manager may appeal against the decision.
	(3)   The appeal is to the General Commissioners, except that the scheme manager may elect (in accordance with section 46(1) of TMA 1970) to bring the appeal before the Special Commissioners instead of the General Commissioners.
	(4)   Paragraphs 1, 2, 8 and 9 of Schedule 3 to TMA 1970 (rules for assigning proceedings to General Commissioners) have effect to identify the General Commissioners before whom an appeal under this paragraph is to be brought, but subject to modifications specified in an order made by the Board of Inland Revenue.
	(5)   An appeal under this paragraph against a decision must be brought within the period of 30 days beginning with the day on which the notification of the decision was given.
	(6)   The Commissioners before whom an appeal under this paragraph is brought must consider whether the overseas pension scheme ought to have been excluded from being a qualifying overseas pension scheme.
	(7)   If they decide that the overseas pension scheme ought to have been excluded from being a qualifying overseas pension scheme, they must dismiss the appeal.
	(8)   If they decide that the overseas pension scheme ought not to have been excluded from being a qualifying overseas pension scheme, the pension scheme is to be treated as having remained a qualifying overseas pension scheme (but subject to any further appeal or any determination on, or in consequence of, a case stated).[Dawn Primarolo.]
	Brought up, read the First and Second time, and added to the Bill.

New Schedule 2
	  
	Non-UK schemes: application of certain charges

Member payment charges 1   (1)   For the purposes of the member payment charges the member payment provisions apply in relation to payments made (or treated by this Part as made) to or in respect of
	(a)   a relieved member of a relevant non-UK scheme, or (b)   a transfer member of such a scheme,
	as in relation to payments made (or treated by this Part as made) to or in respect of a member of a registered pension scheme.
	(2)   Sub-paragraph (1) has effect subject to the provision made by and under paragraphs 2 to 7.
	(3)   The member payment charges are
	(a)   the unauthorised payments charge,
	(b)   the unauthorised payments surcharge,
	(c)   the short service refund lump sum charge,
	(d)   the special lump sum death benefits charge, and
	(e)   the charges under sections 636B and 636C of ITEPA 2003 (trivial commutation and winding-up lump sums and lump sum death benefits) (inserted by Schedule 31).
	(4)   The member payment provisions are the provisions of this Part relating to payments made (or treated by this Part as made) to or in respect of a member of a registered pension scheme.
	(5)   A scheme is a relevant non-UK scheme if
	(a)   relief from tax has been given in respect of contributions paid under the scheme by virtue of Schedule (Overseas pension schemes: migrant member relief) (overseas pension schemes: migrant member relief),
	(b)   relief from tax has been so given at any time after 5th April 2006 under double tax arrangements,
	(c)   a member of the scheme has been, or members of the scheme have been, exempt from liability to tax by virtue of section 307 of ITEPA 2003 (exemption for provision made by employer for retirement or death benefit) in respect of provision made under the scheme at any time after 5th April 2006 when the scheme was an overseas pension scheme, or
	(d)   there has been a relevant transfer at any time after 5th April 2006 when the scheme was a qualifying recognised overseas pension scheme.
	(6)   A relevant transfer means a (direct or indirect) transfer of sums or assets held for the purposes of, or representing accrued rights under, an arrangement made under
	(a)   a registered pension scheme, or
	(b)   another scheme which is a relevant non-UK scheme,
	in relation to a member so as to become held for the purposes of, or to represent rights under, an arrangement under the scheme relating to the member; but also includes a transfer lump sum death benefit paid so as to become held for the purposes of, or to represent rights under, such an arrangement.
	(7)   A member of a relevant non-UK scheme is a relieved member of the scheme if
	(a)   any of the contributions in respect of which relief has been given as mentioned in sub-paragraph (5)(a) or (b) were contributions paid by or on behalf of, or in respect of, the member, or
	(b)   the member is the member, or one of the members, who has been exempt from liability to tax as mentioned in sub-paragraph (5)(c).
	(8)   A member of a relevant non-UK scheme is a transfer member of the scheme if a relevant transfer related to the member.
	2  The member payment provisions do not apply in relation to a payment made (or treated by this Part as made) to or in respect of a relieved member or transfer member of a relevant non-UK scheme unless the member
	(a)   is resident in the United Kingdom when the payment is made (or treated as made), or
	(b)   although not resident in the United Kingdom at that time, has been resident in the United Kingdom earlier in the tax year in which the payment is made (or treated as made) or in any of the five tax years immediately preceding that tax year.
	3   (1)   The member payment provisions do not apply in relation to a payment made (or treated by this Part as made) to or in respect of a relieved member of a relevant non-UK scheme unless the payment is referable to the member's UK tax-relieved fund under the scheme.
	(2)   A member's UK tax-relieved fund under a relevant non-UK scheme is so much of
	(a)   the sums or assets held for the purposes of, or representing accrued rights under, the scheme as, in accordance with regulations made by the Board of Inland Revenue, represents
	(b)   any tax-relieved contributions made under the scheme by or on behalf of, or in respect of, the member and any tax-exempt provision made under the scheme in relation to the member.
	(3)   Tax-relieved contributions means contributions in respect of which relief from tax
	(a)   has been given by virtue of Schedule (Overseas pension schemes: migrant member relief) (overseas pension schemes: migrant member relief), or
	(b)   has been given at any time after 5th April 2006 under double tax arrangements.
	(4)   Tax-exempt provision means provision in respect of which exemption from tax has been given by virtue of section 307 of ITEPA 2003 (exemption for provision made by employer for retirement or death benefit) at any time after 5th April 2006 when the scheme was an overseas pension scheme.
	(5)   Regulations under sub-paragraph (2) may (in particular) provide that the sums or assets which represent any tax-relieved contributions or tax-exempt provision are to be determined otherwise than by reference to the actual amount of the contributions or the amount or value of the provision (for instance by reference to the increase in the value of the member's rights under the scheme during a period for which relief or exemption in respect of such contributions or provision was given).
	(6)   Regulations made by the Board of Inland Revenue may make provision for determining whether or not payments made (or treated as made) by a relevant non-UK scheme are to be treated as referable to a member's UK tax-relieved fund under the scheme (and so whether or not they reduce the fund).
	4   (1)   The member payment provisions do not apply in relation to a payment made (or treated by this Part as made) to or in respect of a transfer member of a relevant non-UK scheme unless it is referable to the member's relevant transfer fund under the scheme.
	(2)   A member's relevant transfer fund under a relevant non-UK scheme is so much of
	(a)   the sums or assets held for the purposes of, or representing accrued rights under, the scheme as, in accordance with regulations made by the Board of Inland Revenue, represents
	(b)   relevant transferred sums or assets.
	(3)   Relevant transferred sums or assets means sums or assets held for the purposes of, or representing accrued rights under, an arrangement under
	(a)   a registered pension scheme, or
	(b)   another scheme which is a relevant non-UK scheme,
	which at any time after 5th April 2006 when the scheme was an overseas pension scheme have been transferred (directly or indirectly) so as to become held for the purposes of, or to represent rights under, an arrangement under the scheme relating to the member; but also includes a transfer lump sum death benefit which at any such time was paid so as to become held for the purposes of, or to represent rights under, such an arrangement.
	(4)   Regulations made by the Board of Inland Revenue may make provision for determining whether payments or transfers made (or treated as made) by a relevant non-UK scheme are to be treated as referable to a member's relevant transfer fund under the scheme (and so whether or not they reduce the fund).
	5  Sections 201 and 202 (short service refund lump sum charge and special lump sum death benefits charge) apply with respect to a lump sum or lump sum death benefit paid to or in respect of
	(a)   a relieved member of a relevant non-UK scheme, or
	(b)   a transfer member of such a scheme,
	so as to make the person to whom the lump sum or lump sum death benefit is paid (rather than the scheme administrator) liable to any charge imposed by either of those sections.
	6   (1)   The amount of any liability to tax imposed on any individual in relation to a payment by virtue of the operation of the member payment charges in consequence of paragraph 1 is to be reduced by the amount of any tax paid in respect of the payment under the law of any country or territory outside the United Kingdom.
	(2)   Where, after any tax which an individual is liable to pay in respect of a payment in consequence of paragraph 1 has been paid, tax is paid in respect of the payment under the law of any country or territory outside the United Kingdom, an appropriate adjustment is to be made in the individual's liability to tax (by way of discharge or repayment of tax).
	7   (1)   The member payment provisions apply with respect to a payment made (or treated by this Part as made) to or in respect of
	(a)   a relieved member of a relevant non-UK scheme, or
	(b)   a transfer member of such a scheme,
	subject to any omissions, additions and other modifications contained in regulations made by the Board of Inland Revenue.
	(2)   Regulations under sub-paragraph (1) may
	(a)   include provision having effect in relation to times before they are made,
	(b)   confer discretion on the Board of Inland Revenue or the Inland Revenue (subject to a right of appeal against any decision taken in exercise of the discretion),
	(c)   make different provision in relation to payments treated (in accordance with regulations under paragraph 3(6) or 4(4)) as being referable to a member's UK tax-relieved fund, or to a member's relevant transfer fund, under a relevant non-UK scheme, and
	(d)   otherwise make different provision for different cases.
	Annual allowance charge 8   (1)   The provisions of this Part relating to the annual allowance charge (the annual allowance provisions) apply in relation to an individual who is a currently-relieved member of a currently-relieved non-UK pension scheme as if the currently-relieved non-UK pension scheme were a registered pension scheme.
	(2)   Sub-paragraph (1) has effect subject to the provision made by and under paragraphs 9 to 12. (3)   A pension scheme is a currently-relieved non-UK pension scheme in relation to a tax year if
	(a)   relief from tax is given in respect of contributions paid during the tax year under the pension scheme by virtue of Schedule (Overseas pension schemes: migrant member relief) (overseas pension schemes: migrant member relief) or double tax arrangements, or
	(b)   a member of the pension scheme is, or members of the pension scheme are, exempt from liability to tax by virtue of section 307 of ITEPA 2003 (exemption for provision made by employer for retirement or death benefit) in respect of provision made under the pension scheme at any time during the tax year when the pension scheme is an overseas pension scheme.
	(4)   An individual is a currently-relieved member of a currently-relieved non-UK pension scheme in relation to a tax year if
	(a)   any of the contributions in respect of which relief is given as mentioned in sub-paragraph (3)(a) are contributions paid by or on behalf of, or in respect of, the individual, or
	(b)   the individual is the member, or one of the members, who is exempt from liability to tax as mentioned in sub-paragraph (3)(b).
	9  The annual allowance provisions apply by virtue of paragraph 8 in relation to an individual who is a currently-relieved member of a currently-relieved non-UK pension scheme as if references to the pension input period of an arrangement under the pension scheme that ends in a tax year were to the tax year.
	10   (1)   Sections 226(1) and 230(1) (cash balance and defined benefits arrangements) apply by virtue of paragraph 8 in relation to an individual who is a currently-relieved member of a currently-relieved non-UK pension scheme in relation to a tax year as if the increase in the value of the individual's rights under an arrangement under the pension scheme relating to the individual during the tax year were the greater of
	(a)   the appropriate fraction of what it otherwise would be, and
	(b)   the amount of any contributions paid under the arrangement during the tax year by or on behalf of the individual (otherwise than by an employer) in respect of which relief from tax is given by virtue of Schedule (Overseas pension schemes: migrant member relief) (overseas pension schemes: migrant member relief) or double tax arrangements;
	and section 233 (hybrid arrangements) applies accordingly.
	(2)   The appropriate fraction is
	TE  EI
	where EI is the total amount of employment income of the individual from any relevant employment or employments for the tax year, and
	TE is so much of EI as constitutes taxable earnings from any such employment (within the meaning of section 10(2) of ITEPA 2003).
	(3)   An employment is a relevant employment if it is an employment with an employer who is a sponsoring employer in relation to the currently-relieved non-UK pension scheme.
	11   (1)   Section 229(1) (other money purchase arrangements) applies by virtue of paragraph 8 in relation to an individual who is a currently-relieved member of a currently-relieved non-UK pension scheme in relation to a tax year as if
	(a)   the reference in paragraph (a) to relievable pension contributions paid by or on behalf of the individual under an arrangement under the pension scheme relating to the individual were to those in respect of which relief from tax is given by virtue of Schedule (Overseas pension schemes: migrant member relief) (overseas pension schemes: migrant member relief) or double tax arrangements, and
	(b)   the reference in paragraph (b) to contributions paid in respect of the individual under such an arrangement by an employer of the individual were to the appropriate fraction of contributions so paid;
	and section 233 applies accordingly.
	(2)   The appropriate fraction is
	TE  EI
	where EI is the total amount of employment income of the individual from any employment or employments with the employer for the tax year, and
	TE is so much of EI as constitutes taxable earnings from any such employment (within the meaning of section 10(2) of ITEPA 2003).
	12   (1)   The annual allowance provisions apply by virtue of paragraph 8 in relation to an individual who is a currently-relieved member of a currently-relieved non-UK pension scheme subject to any omissions, additions and other modifications contained in regulations made by the Board of Inland Revenue.
	(2)   Regulations under sub-paragraph (1) may
	(a)   include provision having effect in relation to times before they are made,
	(b)   confer discretion on the Board of Inland Revenue or the Inland Revenue (subject to a right of appeal against any decision taken in exercise of the discretion), and
	(c)   make different provision for different cases.
	Lifetime allowance charge 13   (1)   The provisions of this Part relating to the lifetime allowance charge (the lifetime allowance provisions) apply in relation to an individual who is a relieved member of a relieved non-UK pension scheme as if the relieved non-UK pension scheme were a registered pension scheme.
	(2)   Sub-paragraph (1) has effect subject to the provision made by and under paragraphs 14 to 19. (3)   A pension scheme is a relieved non-UK pension scheme if
	(a)   relief from tax has been given in respect of contributions paid under the pension scheme by virtue of Schedule (Overseas pension schemes: migrant member relief) (overseas pension schemes: migrant member relief),
	(b)   relief from tax has been so given at any time after 5th April 2006 under double tax arrangements, or
	(c)   a member of the pension scheme has been, or members of the pension scheme have been, exempt from liability to tax by virtue of section 307 of ITEPA 2003 (exemption for provision made by employer for retirement or death benefit) in respect of provision made under the pension scheme at any time after 5th April 2006 when the pension scheme was an overseas pension scheme.
	(4)   An individual is a relieved member of a relieved non-UK pension scheme if
	(a)   any of the contributions in respect of which relief has been given as mentioned in sub-paragraph (3)(a) or (b) were contributions paid by or on behalf of, or in respect of, the individual, or
	(b)   the individual is the member, or one of the members, who has been exempt from liability to tax as mentioned in sub-paragraph (3)(c).
	14   (1)   This paragraph applies in relation to the amount crystallised on the occurrence of an event that is a benefit crystallisation event by virtue of this Schedule in relation to an individual who is a relieved member of a relieved non-UK pension scheme.
	(2)   What would otherwise be the amount crystallised by the event is reduced by so much (if any) of it as exceeds the amount of the untested portion of the relevant relieved amount immediately before the benefit crystallisation event (so that if that amount is nil, there is no amount crystallised).
	(3)   For the purposes of this paragraph and paragraph 15 the relevant relieved amount is the aggregate of
	(a)   the amounts which for each tax year before that in which the benefit crystallisation event occurs would have been arrived at in relation to arrangements under the relieved non-UK pension scheme relating to the individual as pension input amounts under sections 226 to 233 (annual allowance) as they apply by virtue of this Schedule, and
	(b)   the amount which would be so arrived at if the period beginning with the tax year in which the benefit crystallisation event occurs and ending immediately before the benefit crystallisation event were a tax year,
	assuming that section 225(3) did not apply.
	(4)   For the purposes of this paragraph and paragraph 15 the untested portion of the relevant relieved amount is so much of the relevant relieved amount as exceeds the aggregate of the amount which (in accordance with sub-paragraph (2)) is the amount crystallised by each previous event that was a benefit crystallisation event by virtue of this Schedule in relation to the individual and the relieved non-UK pension scheme (so that if there has been no such previous event the untested portion of the relevant relieved amount is the whole of that amount).
	15   (1)   An individual who is a relieved member of a relieved non-UK pension scheme may at any time elect by giving notice to the Inland Revenue in a form specified by the Board of Inland Revenue that a benefit crystallisation event is to be treated as occurring on the date specified in the notice in relation to the individual and the relieved non-UK pension scheme.
	(2)   The amount crystallised on the occurrence of an event that is a benefit crystallisation event by virtue of sub-paragraph (1) is the untested portion of the relevant relieved amount.
	16   (1)   This paragraph applies on the occurrence of a transfer of sums or assets held for the purposes of, or representing accrued rights under, a relieved non-UK pension scheme which (apart from sub-paragraph (2)) would by virtue of paragraph 13 be a benefit crystallisation event in relation to an individual who is a relieved member of the relieved non-UK pension scheme.
	(2)   The event is not a benefit crystallisation event if the transfer is a block transfer.
	(3)   A transfer is a block transfer if it involves the transfer in a single transaction of all the sums and assets held for the purposes of, or representing accrued rights under, the arrangements under the relieved non-UK pension scheme which relate to
	(a)   the individual, and
	(b)   at least one other member of the relieved non-UK pension scheme (whether or not that member is a relieved member).
	17  Section 213 (persons liable to charge) applies with respect to a liability to the lifetime allowance charge arising by reason of the occurrence of an event that is a benefit crystallisation event by virtue of this Schedule in relation to an individual who is a relieved member of a relieved non-UK pension scheme with the omission of references to the scheme administrator.
	18   (1)   This paragraph applies where sums and assets held for the purposes of, or representing accrued rights under, a relieved non-UK pension scheme are transferred so as to become held for the purposes of, or to represent rights under, another pension scheme (the transferee pension scheme) in circumstances in which, by virtue of paragraph 16, the transfer does not constitute a benefit crystallisation event.
	(2)   Paragraphs 13 to 17 and sub-paragraph (1) have effect after the transfer as if
	(a)   references to a relieved non-UK pension scheme included the transferee pension scheme (if not a relieved non-UK pension scheme),
	(b)   references to an individual who is a relieved member of a relieved non-UK pension scheme included the individual to whom the transfer related (if not a relieved member of a relieved non-UK pension scheme), and
	(c)   the relevant relieved amount consisted of, or (if there is a relevant relieved amount in relation to the individual and the transferee pension scheme apart from this paragraph) included, the amount which would have been the amount crystallised had the transfer constituted a benefit crystallisation event.
	19   (1)   The provisions of this Part of this Act relating to the lifetime allowance charge apply in relation to an individual who is a relieved member of a relieved non-UK pension scheme subject to any omissions, additions and other modifications contained in regulations made by the Board of Inland Revenue.
	(2)   Regulations under sub-paragraph (1) may
	(a)   include provision having effect in relation to times before they are made,
	(b)   confer discretion on the Board of Inland Revenue or the Inland Revenue (subject to a right of appeal against any decision taken in exercise of the discretion), and
	(c)   make different provision for different cases.
	Meaning of double tax arrangements 20  In this Schedule double tax arrangements means arrangements having effect by virtue of section 788 of ICTA (relief by agreement with other territories).'.[Dawn Primarolo.]
	Brought up, read the First and Second time, and added to the Bill.

Schedule 40
	  
	Repeals

Amendment made: No. 223, in page 586, line 15, leave out from beginning to '94' in line 16 and insert 'Sections 92 to'.[Dawn Primarolo.]
	Order for Third Reading read.[Queen's Consent, on behalf of the Crown, and Prince of Wales's consent, on behalf of the Duchy of Cornwall, signified.]

Dawn Primarolo: I beg to move, That the Bill be now read the Third time.
	I wish to thank all the right hon. and hon. Members who participated in the Committee of the whole House and the Standing Committee, and whose contributions produced lively exchanges, constructive debate and some improvement in the content of the Bill.
	In March, the Budget set out the Government's determination to take the right steps to meet the challenges and pressures that face the nation now and in the future. This Finance Bill introduces the measures through which we shall take these steps by strengthening stability, supporting enterprise and ensuring fairness. In doing so, modernising the tax system and the protection of tax revenues go hand in hand with greater investment in public services and improvements in efficiency.
	Promoting enterprise and productivity have long been key aspects of our economic policymaking, alongside introducing measures that will create a platform of stability for business, and ensuring that the UK keeps pace with the global economy. The Bill takes those objectives forward through some specific measures.
	In the past, we have cut corporation tax. The Bill freezes corporation tax rates at their current level, and clauses 38 to 46 will take forward our continuing reform of the corporation tax system. To provide enterprise incentives, clauses 93 and 94 will amend the enterprise investment schemes and the venture capital trust schemes. The Bill confirms the Government's commitment to allow investments in venture capital trusts to secure tax relief of up to 200,000 a yearnot at the lower rate of 20p, but at the higher rate of 40p.
	Clauses 138 to 139 provide particular reliefs to business. To increase the incentive to invest in research and development, a new definition of research and development tax credits came into effect on 1 April 2004. To assist small business cash flow and enhance funding for new investment, the Bill will increase the first year capital allowance for small business investment in plant and machinery from 40 per cent. to 50 per cent. That increased allowance will be available for 12 months from April 2004.
	Promoting enterprise and competition is important, but it must be underpinned by fairness. Our objectives for stable public finances and world-class public services require a tax system that is fairone in which everyone pays or claims what is due. To protect the revenue for investment in the public services that this country wants, we are determined to tackle tax avoidance and evasion. To do that, we have brought in a number of legislative changes to close loopholes that have been exploited for avoiding tax. Most importantly, through clauses 298 to 311, we have introduced disclosure rules to ensure that we find out about new loopholes earlier and can announce changes in the law to protect the Exchequer and the generality of taxpayers.
	Throughout consideration of those proposals, concerns have been raisedthey were raised again yesterday, especially by the hon. Member for Arundel and South Downs (Mr. Flight)about the possible impact of the rules on normal, bespoke tax advice. I repeat my assurances that those rules will not target straightforward tax planning, such as the advice that companies necessarily seek when planning a takeover or merger. The revised draft regulations will ensure that the rules target arrangements that present a significant risk to the Exchequer. Having carefully reconsidered the points made by the hon. Member for Arundel and South Downs, I shall go further by saying that a number of points will be taken forward.
	The Revenue has been working with tax advisers and industry representatives during the consultation to refine the rules in two key areas. First, the definition of a promoter will be restricted to ensure that only those at the heart of a scheme are required to disclose. Broadly, that will exclude anyone who is not directly responsible for designing those parts of the scheme that give rise to the tax advantage. Secondly, the final published regulations will contain more narrowly targeted rules that should be relatively easy to apply. In particular, the financial products test will be limited to arrangements where it would be possible for the promoter to obtain a fee attributable to the tax advantage achieved by the scheme, where the tax advantage arises from elements of the arrangements that a promoter might wish to keep confidential or where a promoter is party to a financial product on terms that are significantly different from open market terms.
	In explaining that approach to the House, I stress to the hon. Member for Arundel and South Downs and other hon. Members that we are in absolute agreement on the questions that they have asked about filtering out ordinary, ongoing and bespoke tax advice and bespoke planning advice on commercial transactions where the tax arrangements are unremarkable. We will continue to watch such things closely and consider the views of the House on them.
	Under clause 19, we will also introduce new requirements to disclose the use of VAT avoidance schemes. The Bill confirms our commitment to tackle complex tax avoidance schemes using trusts. Clause 84 will introduce an income tax charge on pre-owned assets to ensure that people use trusts for legitimate transactions, not to achieve unfair tax avoidance. Together, those and other measures are intended to seek to safeguard fairness in the tax system to ensure that everyone pays their way and that as little as possible is wasted through avoidance and fraud.
	The Bill takes forward some of the key steps that we are taking to ensure that the country has the means to meet the challenges of the future. It is however important that individuals can do that as well. That will be delivered and driven by our pension simplification measures, which are the most radical changes to pension tax for a generation and are encompassed in clauses 146 to 278. Simplifying the taxation of pensions is the cornerstone to making pensions easy for everyone to understand, thus enabling everyone to prepare for their future. By replacing the previous rules with a single regime for tax-privileged pension saving, the Government will reduce complexity, cut regulation and introduce more flexibility for those who save or wish to save for retirement. We are introducing a simple system that enables people to plan and save for their retirement. In that way, the Bill renews and reaffirms the Government's role in the UK's pensions partnership.
	The Government aim to maintain the UK as a low-tax environment. The Bill enshrines that ambition. It will build on and develop the macro-economic stability that is essential for our future productivity, growth and prosperity. It will support business, while ensuring fairness. It will enable this country to match its new-found economic stability with the confidence to excel in the future. The Budget laid down the measures that will enable the UK to respond to and meet the challenges of the global economy, and the Bill will set them in statute. I commend it to the House.

Howard Flight: We have not had last year's problem of having a timetable for our proceedings, which resulted in a lack of time for adequate scrutiny, but such was the lack of consultation on some key areas of the Bill and the Government's failure to understand the knock-on effects of their major changes, that we have considered a deluge of amendments and new clauses on Report. The Government's failure to get to grips with several complex aspects of the Bill and their unfairand, I trust, unintendedeffects needs to be addressed, so I was pleased to hear the Paymaster General commenting on their willingness to do so. That will inevitably mean that the Inland Revenue will have to sort out the problems through Revenue guidance later on, but it is wrong and undemocratic for our system to be governed increasingly by Inland Revenue fiat.
	The Bill will create more than 600 pages of complex legislation with which businesses and citizens must cope. I described it as dull on Second Reading, but perhaps depressing would be a better word. It contains nothing positive for the productive economy, and it will do nothing to relieve citizens and businesses from the burdens of big spending, big borrowing, big taxes and the inefficient big government that is failing to deliver promised improvements to public services. It will add to the command and control culture that is inevitably expensive and bears down on our economy's competitiveness. The impact of the Bill will go well beyond the Government's estimates on Revenue staffing and cost, yet the resultant additional tax-take is unlikely to be significant.
	At the present stage in the economic cycle, with zero slack capacity, any prudent Chancellor would have tried to increase the savings rate, but the Bill contains no incentives for savers. Contrived outside the Bill itself, individual savings accounts are becoming less attractive to the 15 million ISA savers.
	Although there is common support for the measures that will require the reporting of marketed tax avoidance schemes, and notwithstanding the Government's climbdown in response to some of the criticisms from the legal profession, the reporting requirements in the Bill extend well beyond such schemes. The failure to draw a line is likely to result in the Inland Revenue being snowed under by the reporting of regular corporate tax planning arrangements. I repeat that I welcome the Paymaster General's intention, but I am not sure how she will achieve her aim.
	The Government have similarly committed overkill with their retrospective charge to income tax on pre-owned assets. They promoted those measures as an attack on past aggressive inheritance tax planning to avoid the gifts with reservations rules. However, as they have chosen to adopt an entirely new catch-all tax with only a limited number of exemptions, the new system goes much further. The new income tax will apply to situations accepted previously by the Revenue as being outside the gifts with reservations rules, and within the statutory gifts with reservations exemptions that the Government introduced. A greater concern is that while the new income tax is technically retroactive, it is in principle retrospective. It changes the tax rules that are applicable to transactions entered into as far back as 18 years ago, which were legal at that time. The Government are effectively introducing a major and unacceptable new doctrine that retrospective legislation is legitimate if there has been tax avoidance.
	The Bill also includes the new and complicated 19 per cent. non-corporate distribution tax on small incorporated businesses. The problem that exists is wholly of the Government's making, as we warned at the outset. Those measures, together with clause 86 and the Jones section 660 case, on which the ruling of the special commissioners is awaited, constitute an attack on small manager-owned businesses that will burden them with unnecessary complexities. Clause 86 undermines the basis of independent taxation as set out by the Chancellor at the time of its introduction. It meant that husbands and wives were free to organise their tax affairs to benefit from the new independent taxation rules.
	The new simplified tax regime for pension saving turns out not to be so simple after all. Although many of the reforms have been generally welcomed and the increased flexibility was badly needed, the changes were supposed to reduce eight regimes into one, but as we pointed out, in reality there will be six sub-regimes. The transitional arrangements will be highly complicated and retrospective for those who were specifically grandfathered when the original pension cap was introduced in 1989. The most unfair aspect is that the 20:1 pension formula for valuing a final salary scheme pension is significantly more generous than the fixed 1.5 million limit for money purchase pensions.
	The Government have remained deaf to the probability that clause 20, which tightens up on VAT group relief, will be a major incentive to banks and other large service organisations to subcontract their back offices overseas.
	The Government have failed to convince anyone that the costly and complex strip stamping regime for spirits will work, or that the cost to the industry will be proportionate to the benefit of the strip stamp.
	This is a bad Finance Bill with ever more complexity and costs, adding nothing to the productive part of the economy. The overkill on anti-avoidance and the retrospective nature of the pre-owned assets legislation alone are sufficient grounds to vote against it. The once prudent Chancellor has contrived to seek to create a pre-election boom by massive increases in public expenditure and borrowing, at the cost of creating a large structural deficit and an unsustainable increase in personal borrowing, to more than a trillion.
	In the forthcoming spending review the Chancellor will not tell us by how much he will increase taxation if Labour were to win another election. He will not be telling us either that when he knows that he should be putting the brakes on out-of-control public expenditure, he cannot do so because he has refused to backtrack on the overbearing and inefficient micro-management big state that he has created. The Government have not only been wasting taxpayers' money by mistake, but they have on purpose developed a command-and-control regime that has bloated the cost of government itself.
	The Chancellor knows that he has already lost the confidence of much of the business community. As the recent elections showed, Labour is losing the confidence of the voters.

David Laws: As the hon. Member for Arundel and South Downs (Mr. Flight) hinted at the beginning of his comments, we have at least this year had a good opportunity to debate all the elements of the Finance Bill, notwithstanding one or two late amendments. That is by contrast with last year. I think that last year we had one extended day for the last stages of the Finance Bill. It is to be welcomed that this year the Government listened to some of the concerns and criticisms that were expressed about the amount of time that we have.
	The hon. Member for Arundel and South Downs is also correct to say that this is perhaps one of the less memorable Finance Bills of recent years. When we examine the costings of all the different measures that the Government have put forward in the Bill, we can see nothing of any great size. I leave it to others to decide whether the Chancellor has run out of money to give away this year, or whether he has run out of ideas for new policies.
	We have had a good opportunity to debate in detail many of the issues that arise from the Bill, so I want only to pick out some of the salient points in summary, both those where the Government seem to have made some progress and those areas where we have continuing concerns about the Government's policy.
	On the simplification of the pensions tax regime, we largely agree that it is an improvement on the previous situation, and we welcome that. We have continuing concerns about duty stamps for spirits, not least because we question whether there is evidence to justify the measure that the Government are bringing forward in terms of its potential cost for the industry. However, we accept that the Economic Secretary has made some important progress in recent weeks behind the scenes with the industry in considering how the Government's policy can be introduced in a way that will reduce the burden on the industry. We hope that those discussions will continue so that a more workable scheme can be developed that will not have the bad effects and the high cost burdens on the industry that the initial proposals in the Bill were to have.
	We welcome many of the proposals in the Bill on the issue of tax avoidance. The Paymaster General is right to say that it would be of concern to any Government given the potential leakage of revenue. We have heard not only of large tax avoidance schemes that have taken effect over the past couple of years, but about how effective the industry is in developing new tax avoidance schemes even during consideration of the new Finance Bill. We therefore welcome many of the measures in the Bill, and the Government are sensible to introduce more general anti-avoidance legislation, including the pre-notification requirements for artificial schemes.
	We have only two concerns about the Government's proposals on tax avoidance, and they relate to bespoke advice and de minimis limits. The Paymaster General was slightly more constructive about those issues on Third Reading than she was on Report, and I hope that behind the scenes the Revenue will work with the industry to make sure that the proposals are workable and reduce the burden on business and the tax industry if the Government insist on notification of everything that moves. I am pleased, however, that the Paymaster General has softened her position a little. If we are to get to grips with tax avoidance, the Government should not only close loopholes but resist the opportunity to open others that can be exploited. When we discussed charity taxation reliefs, we saw how easy it is, even when there is well meaning and apparently well thought-out Government legislation, to develop artificial schemes and contrivances that can be immensely expensive.
	The Government have a responsibility not to introduce complicated new schemes that can be open to abuse. As the hon. Member for Arundel and South Downs said, the Government were warned at the time that their proposals on the zero per cent. rate of corporation tax would open a huge tax loophole, leading to a loss of revenue, which is exactly what has happened. The contrivance of the 19 per cent. rate on non-corporate distributions will impose a big burden on small businesses that lack a sophisticated appreciation of taxation matters, not least because they will find it hard to understand how it affects them. They will have to purchase more complex and costly tax advice, but they should not be put in such a position. I very much hope that after the further review of the corporate tax system which, the Government say, will take place in the next couple of years, a more settled tax regime for small businesses will replace the system of four or five different rates that has been in operation over the past few years.
	The Finance Bill is disappointing not so much because of its provisions, some of which are sensible and deal with matters that require reform, but because it is detached from the concerns of ordinary taxpayers around the country, in middle Britain and in middle England. Our debates on issues such as pension tax reform demonstrate, as the hon. Member for Grantham and Stamford (Mr. Davies) said, how far removed we are from the concerns of the average taxpayer on an average income. We discussed how people would be affected by a 1.5 million or 1.8 million pension potsums which are way beyond the income of the average taxpayer, who is concerned about the increasingly aggressive nature of the tax system, not least the huge 80 per cent. increase in council tax since 1987; the way in which more and more people are being pulled into the tax net following the failure to index the personal allowance in line with earnings; and the fact that stamp duty on residential property catches most first-time buyers, although it caught only 18 per cent. of them 10 years ago, since when it has not been indexed. The Bill's biggest weakness is its detachment from the tax concerns of average taxpayers, who want a fairer, simpler tax system. Instead, they have had more fiddling and unfairness, so we hope that the Government will learn that lesson when they introduce Finance Bills in future.

Question put, That the Bill be now read the Third time:
	The House divided: Ayes 249, Noes 136.

Question accordingly agreed to
	Bill read the Third time, and passed.

DELEGATED LEGISLATION

Mr. Deputy Speaker: I propose to put together the Questions on motions 3 and 4.
	Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),

Environmental Protection

That the draft Landfill (Scheme Year and Maximum Landfill Amount) Regulations 2004, which were laid before this House on 22nd June, be approved.

Northern Ireland

That the draft Dangerous Wild Animals (Northern Ireland) Order 2004, which was laid before this House on 22nd June, be approved.[Derek Twigg.]
	Question agreed to.
	Motion made, and Question put forthwith, pursuant to Standing Order No. 18(1)(a) (Standing Committees on Delegated Legislation).

Regulatory Reform

That the draft Regulatory Reform (Museum of London) (Location of Premises) Order 2004, which was laid before this House on 6th May, be approved.[Derek Twigg.]
	Question agreed to.

PETITION
	  
	Gypsies

Harry Barnes: The petition that I shall present is from genuine Gypsies, who are more than pleased to be called Gypsies. It has been organised by Derbyshire Gypsy Liaison Group and is signed by members of 14 organisations, including the National Association of Gypsy Women and the United Kingdom Romani Gypsy Council. It has 2,517 signatures and seeks non-discrimination against Gypsies, especially on planning matters. It is signed by Siobhan Spencer of the Ernest Bailey community centre on New street in Matlock, Derbyshire as well as the other signatories.
	The petition states:
	To the House of Commons
	The Petition of the Derbyshire Gypsy Liaison Group and supporters declares
	That Gypsy people have for centuries been in the United Kingdom, and that we are a distinct group, sharing common ancestors, a distinct language, cultural beliefs and a common oral history.
	The Petitioners therefore request the House of Commons to urge the Secretary of State at the Office of the Deputy Prime Minister to introduce amendments to the 1/94 guidelines on planning and settlement applications to align them with the Mandla criteria of 1988 in order to prevent racial discrimination against Romani and other ethnic Traveller peoples, the Irish Traveller community having received ethnic status in 2000.
	And your Petitioners remain, etc.
	To lie upon the Table.

Medical Manslaughter

Motion made, and Question proposed, That this House do now adjourn.[Mr. Ainger.]

John Denham: I am very grateful for the opportunity to have this Adjournment debate this evening. The question that I would like my hon. Friend the Minister to consider is this: how is it possible for two doctors to be convicted of manslaughter as a result of medical negligence or incompetence, yet still be allowed to practise medicine in this country without any action whatever being taken by the General Medical Council? I have great respect for my hon. Friend, and I suspect that if I had put that question to him hypothetically before he had been briefed for tonight's debate, his initial reaction might have been, That could not possibly happen. Yet, as I shall set out, that is precisely what has happened.
	Having been an MP for 14 years, I sometimes think that constituency cases that come into surgeries are losing the power to shock, but the case that was brought to me by my constituent, Annabel Grant, on behalf of herself and her six-year-old son Mitchell, genuinely shocked me. Annabel Grant's partner, Sean PhillipsMitchell's fatherdied in 2000. An apparently routine knee operation in June 2000 was followed by infection. His condition was not properly identified by the doctors concerned, Dr. Amit Misra and Dr. Rajeev Srivastava, and, tragically, Mr. Phillips died a few days later.
	Following the death, Southampton University Hospitals NHS Trust contacted the General Medical Council in August 2000. A professional advisory panel at the hospital had concluded about Dr. Misra:
	On the basis of your involvement in the case of Sean Phillips there are serious questions about your competence to look after the general medical needs of sick patients. Your involvement in other cases
	I have no knowledge of those other cases, but there clearly were some
	suggests that your note keeping is poor and that you require remedial training and assessment.
	I am not clear as to what information was provided about Dr. Srivastava, although the GMC tells me that it received information about him at the same time.
	In October 2000, Hampshire police became aware that the hospital had sent papers to the GMC regarding Dr. Misra, and they began their own investigation. More than a year later, in January 2002, both doctors were arrested and charged with the manslaughter of Sean Phillips. Their case was heard in April 2003. At the trial, an expert for the prosecution, Dr. Wilcox, gave evidence. I am relying on a letter that I have received from the Crown Prosecution Service for this summary of the evidence that he gave. In that evidence, I am told that he made it clear that he would have expected a third or fourth year medical student to have appreciated the fundamental importance of the basic vital signs of life, in terms of pulse, temperature and blood pressure, and to have realised that Sean Phillips was suffering from a serious sepsis from about 12 noon on Saturday 24 June 2000.
	In his summing up, the judge referred to Dr. Wilcox's remarks, saying that if, in an oral examination, Dr. Wilcox had given a third or fourth year medical student only the observations on Sean Phillips, and the fact that he had had an operation on his left knee, and the student had failed to answer that the diagnosis was an infection, Dr. Wilcox would have thought of failing the student on that basis alone. Dr. Wilcox also made the point in the expert evidence that every mother knew what a high temperature meant, and that if a high pulse and low blood pressure were added, basic aspects of medical care should tell a doctorwhatever his trainingthat the patient was seriously ill.
	Obviously, I cannot rehearse here every point made in the trial, but that gives a flavour of the evidence. At sentencing, the trial judge, Mr. Justice Langley, stated that manslaughter was a very serious crime, and that it was for the jury to determine whether the defendants' conduct in relation to Sean Phillips was so exceptionally bad that it should be characterised in that way. The jury decided that it should. The judge passed a sentence of 18 months, suspended for two years. In doing so, he said:
	you are both men with young families and your future in the medical profession is now in doubt and that is a real loss to both of you.
	The implication, and what the judge expected, was clear. It was what Mr. Phillips's family expected, and it appears to be what Dr. Srivastava seems to have expected, as his barrister told the court:
	His career in this country, which only a short time ago showed so much promise, is now bound to come to an end.
	Yet, today, both doctors enjoy full registration, without restriction, with the General Medical Council. I understand from press reports, at least, that both are still working for the national health service, one in the Newcastle upon Tyne area and the other in Dundee.
	Let me turn to the history of the General Medical Council's handling of the cases of those two doctors. The GMC was first alerted to the case in August 2000. As I have said, irrespective of any police investigation, it had been told that a professional advisory panel in Southampton had concluded that Dr. Misra required remedial training and assessment. It seems, however, that no action was taken or considered for a further 16 months, despite the fact that from November 2000, the GMC was aware that the police were investigating.
	In February 2001, the General Medical Council met Hampshire police in Southampton, where it was handed papers including a summary of the investigation, a chronology of events, the police witness and exhibit lists, the trust internal review, an external review of the trust action plan, a medical report by the director of orthopaedics, and a copy of the statement of Professor Robert Forrest, which had been produced at the request of the police regarding Sean Phillips's treatment.
	At some point in that period, although no action was being considered by the General Medical Council against the doctors, the GMC decided to extend Dr. Srivastava's time-limited registration from July 2001 to July 2002. I do not know exactly when that happened, but certainly, it was after the GMC was aware of the police investigation, and probably after it received those documents. The GMC told me that the chair of registration extended registration because of
	the lack of evidence from the police.
	I will come back to that.
	Not until the doctors were arrestedin 2002does the GMC seem to have considered any action. However, the medical screener at the GMC
	felt that despite their being charged by the police, he was unable to refer Dr. Misra or Dr. Srivastava to the IOC without at least having had sight of the police expert report.
	I am familiar with the IOCthe interim orders committeebecause, as a Health Minister, I took through the House the order that gave the General Medical Council the power to issue interim orders. When I introduced the debate on those new regulations, on 6 July 2000, I told the Committee:
	Urgent action is needed to widen the powers of the GMC, so that it can deal quickly and more effectively with doctors whose fitness to practise comes into question. This action is the first step in repairing the damage to the bond of trust between doctors and their patients.[Official Report, Standing Committee 2DL, 6 July 2000; c. 12.]
	Obviously, I was far too optimistic. Despite the arrests, the case and the available information were not even referred to the interim orders committee of the GMC.
	Again, in correspondence with me, the General Medical Council seems to suggest that it was the failure of the police or the Crown Prosecution Service to supply information that was the problem. I want to say to my hon. Friend the Minister that that is an absolutely unacceptable attitude, and I hope that if that case is put to him, he will reject it. Let me explain why.
	First, the General Medical Council clearly had a substantial body of information, including the initial report from the hospital, on which it could have taken action. There were a whole series of meetings between the police and the GMC at which the case was discussed and information shared. Secondly, as the Crown Prosecution Service has pointed out in a letter to me, although it might have been debarred from releasing a witness report at a time that could have prejudiced a prosecution, the GMC could have sought a court order to obtain it.
	I agree with what the CPS told methat
	the integrity of the prosecution must take priority and . . . the supplying of further statements or reports might be argued by the defence to have caused them prejudice and hence render any future trial unfair. It was considered that the GMC could apply to the High Court for an order seeking disclosure if it saw fit and the High Court would then be in a position to impose appropriate restrictions on the use of the evidence.
	In other words, I believe that, had the GMC taken the initiative, it could have obtained the evidence when it wanted it, in a way that would not have prejudiced the trial, but the GMC chose not to do so. It is worth saying, though, that by the summer of 2002 a number of pieces of evidence had been provided to the GMC.
	Let me make a third and equally fundamental point about the GMC's attitude to CPS information. It undermines the principle of self-regulation of the General Medical Council if the GMC is not willing to take responsibility for investigating the conduct of doctors. Here we had two doctors, both arrested for manslaughter, and the GMC position seems to be that it was under no obligation to take action if it did not get information on the investigation provided by the police. That is not acceptable. In any case, by August 2002, the GMC had been provided with the report that I mentioned earlier from Professor Forrest, as well as the further detailed conclusions of another prosecution expert, Professor Healy.
	When that information came through, the GMC finally referred both doctors' cases to the interim orders committee. It met in the autumn of 2002 in the case of both doctors, in private. The interim orders committee concluded that no action was necessary. This is the rub: tonight we do not know what was said at those meetings. We can reasonably assume, however, that it was the same evidence that a few months later would lead a jury to convict both doctors of manslaughter.
	I spoke earlier of the bond of faith that needs to exist between doctors and patients. The gap between what the jury thought was appropriate when the case came to trial and what a group of the GMC in private thought was appropriate could not be wider. That is deeply worrying.
	Let me make it clear that the interim orders committee does not have to strike doctors off. It can take lesser actions. It can suspend a doctor. It can restrict a doctor's ability to practise without supervision, for example. I believe that it could have required the retraining that the Southampton NHS trust thought was necessary. But the interim orders committee did nothing.
	Finally, the trial was held and both doctors, having been convicted, were referred back to the interim orders committee. I assume that when the cases came to the interim orders committee a second time, the GMC had available to it all the necessary information. I know that the Crown Prosecution Service provided the prosecution case summary, a bundle of witness statements, the medical records, further prosecution expert medical reports and defence expert reports. What I do not know is whether the GMC had transcripts of the trialthe judge's remarks and so on.
	I know that advice on how to obtain the information was passed to the GMC after the trial, but no one from the GMC attended the trial. After the trial the GMC did not ask the police for any material in respect of either doctor. The GMC did not take up the offer made by Hampshire police that after the trial the case officer would supply any or all relevant information. So I can only assume that the GMC had all that information when it decided to take no action, as it finally did. If not, it was grossly negligent. Both doctors went back to the interim orders committee, having been convicted of manslaughter, and the GMC again decided on no action at all.
	It is important to put on record that both doctors have the right to appeal against their conviction for manslaughter and that the GMC will not complete its consideration of either doctor's case until that appeal has been heard. I accept that. There may be the possibility of further action and it is possible that the Appeal Court decision will be different from that of the original trial judge, but the whole point of the interim orders committee was to allow the GMC to act quickly, in the public interest, in cases that by their very nature usually take years to conclude. It was the fact that, in previous years, the GMC said that it could do nothing until the legal process was completed that led me, when a Minister, to introduce interim ordersbut they have not been used.
	As far as I can tell, only two things have happened since the trial. First, a Dr. Gaangophadhyay, who appeared as a witness in the case, was reprimanded by the GMC. The witness is the only doctor to have suffered action at the hands of the GMC. Secondly, Dr. Srivastava's registration was upgraded to full registration. The GMC tells me that because of the conviction a question arose as to Dr Srivastava's good character. Many members of the public might have taken a different view from the one that the GMC seems to have takenthat being convicted of manslaughter as the result of medical poor practice did not mean that someone was not of good character and was thus no bar to full registration.
	My constituent, Annabel Grant, is appalled at the way that she has been let down by the system. Not surprisingly, she feels that neither doctor should ever practise again. I need to be consistent, however. When I occupied my hon. Friend's position as a Health Minister, I accepted that one mistake need not always cost a doctor their career and that we should have a system that offered individuals the chance to retrain, to work under supervision and to learn from their mistakes. But manslaughter is a very serious offence. The gravest thought must be given before allowing doctors convicted of manslaughter to practise and if they are allowed to do so, it can be only under the tightest possible controls. Instead, in this case, no action was taken, despite the jury's decision and despite the clear implication in the judge's words, when he passed sentence, that the doctors' careers were in doubt.
	I want to make some final points. The GMC tells me that its procedures will change later this year with the introduction of its fitness to practise review. I asked the Library for advice about that and I agree with it that
	Even if we did have the final outcome of the current reforms, it would be hard to comment on how these would affect the specifics of the two cases with which you are concerned. For example, I understand that where there has been a serious conviction, the case would, under the new procedures, go directly to the 'fitness to practise' panel but that by itself would not necessarily alter what they decide.
	That is the key point. We can have as many procedures as we like, but if we are not prepared to use them they mean nothing.
	The crux of the matter is that, on the same evidence, a jury convicts yet the GMC decides there is no problem. That is the challenge that faces my hon. Friend the Minister. I have been impressed by Annabel Grant's determination to pursue injustice but depressed by her story. When I took through the House the new regulations that established the interim orders and gave the GMC new powers in 2000, I genuinely believed that it had at long last recognised that the power of self-regulation carried with it the responsibility to do so effectively. It seems from this case that less progress has been made than I hoped.
	If I am right and the GMC had the power to act but failed to do so, will my hon. Friend the Minister take up this tragic case with the GMC and ask why it did not use the power Parliament gave it? If I am wrong and there were legal obstacles to effective action, he must bring in changes, as I tried to do four years ago, but this time we must make the system work.

Stephen Ladyman: I congratulate my right hon. Friend the Member for Southampton, Itchen (Mr. Denham) on securing a debate on this important subject. I congratulate him, too, on the measured and thoughtful way in which he put his case. I freely confess that he has given me much to think about. In case I do not get a chance to make this point at the end, I assure him that everything he has said will be considered by all those dealing with the case and I shall ensure that we all reflect on the points that he has made. I will also ensure that all his points are brought to the attention of my right hon. Friend the Minister of State, who normally deals with issues such as this.
	It will hardly surprise my right hon. Friendwho, as he said, was a distinguished health Minister himselfthat I begin by paying tribute to the vast majority of doctors and other health-care professionals who give a first-class service to the huge majority of patients and the million people who are treated safely and successfully every day in the national health service. Yet experience tells us that no matter how dedicated and professional staff are, things do go wrong in complex health-care systems, with serious repercussions for patients and their families. Although small in proportion to the volume of good health care delivered daily, such events can, as my right hon. Friend said, erode public confidence.
	Patients deserve high-quality health care and must have the utmost confidence in the services that are providedand, crucially, in the health-care professionals involved in their delivery. In situations involving life and death, when they are vulnerable, patients want and are entitled to expect doctors on whom they can rely. I understand how the tragic events that occurred at Southampton General hospital and afterwards may have combined to undermine that confidence. I also understand why the family of Mr. Phillips feel let down, both by individuals and by the system. At this point, let me add my condolences, albeit belatedly, on their loss.
	As the General Medical Council's case against Dr. Misra is still going on, my right hon. Friend will understand that it would not be appropriate for me to comment on these events in detail. He will be aware that the GMC's professional conduct committee is unable to proceed further until Dr. Misra's appeal against his conviction has been heard. The GMC's interim orders committee has considered whether it was necessary for the protection of the public, or in the public interest or Dr. Misra's own interest, to impose restrictions on his registration pending the PCC's hearing. The committee decided, in the light of all the evidence before it, that interim action was not necessary in this case. Dr. Misra therefore remains fully registered with the GMC.
	As for Dr. Misra's appeal against his conviction for manslaughter, I am informed that at a directions hearing on 15 June, the Court of Appeal decided that preliminary legal arguments relating to the legality of the offence of gross negligence manslaughterparticularly in relation to the field of medicineand its compatibility with the European convention on human rights would be determined at a hearing on 20 and 21 July. Following that decision and any subsequent appeal to the House of Lords, and should the convictions stand, further issues will be determined at a court hearing, which will be listed not before September this year.

Mr. Deputy Speaker: Order. I am reluctant to stop the Minister in mid-flow, but I am a little concerned about the sub judice rule. Can the Minister tell me that the matter has been thought through, and that nothing he says this evening will prejudice either the GMC or, more particularly, court cases that may arise in future?

Stephen Ladyman: You are absolutely right, Mr. Deputy Speaker. That is why I am being more circumspect than I am sure my right hon. Friend would want me to be. I have said all that I am going to say about the specific case; now I am simply putting on record the timing of the case, and when decisions relating to it will be made. I shall describe the generality of the position and justify the way in which we have reached it, rather than talking about the specifics. I am sure that that will disappoint my right hon. Friend and his constituent, but I hope they will understand.
	Let me return to the theme of confidence. A key strand of the NHS quality agenda is assuring patient safety. Patients need to be confident that the NHS is doing all it can to prevent and detect errors early, before tragic consequences occur. They also need to be confident that the NHS can learn from such incidents and prevent them from re-occurring, and to have confidence in the professional regulatory framework that is responsible for ensuring that health-care professionals are competent, up to date and trustworthy. As we have seen from other high-profile incidents and investigations, public confidence in the NHS is almost synonymous with confidence in the medical profession.
	I am sure that the House will agree that however effective systems are in reacting to an incident, it is clearly preferable that measures be put in place to help detect such incidents, and to prevent them from occurring in the first place. Concerns about a doctor's performance could emerge from a number of sources even before a serious error or incident occurs. It is essential, therefore, to have systems in place to recognise these problems early on and to deal with them effectively, so that the risks to patients are minimised and doctors in difficulty can be helped and supported.
	The Government established the National Clinical Assessment Authority in April 2001 as part of a package of measures aimed at underpinning and improving the quality of clinical care in the NHS. The NCAA aims to improve public confidence in the performance of doctors and dentists by helping local organisations to manage performance problems swiftly, effectively and sensitively; by promoting the development of excellent local and national procedures for preventing, identifying and resolving performance problems; and by assessing individual doctors and dentists and recommending practical ways in which their performance can be improved.
	Such efforts involve striking a balance between the central importance of protecting patient safety by addressing performance problems, and not needlessly writing off doctors and dentists who could be returned to safe and valued practice. The NCAA has shown that it can help the NHS to strike that balance; indeed, my right hon. Friend acknowledged the importance of doing so. In 200304, the NCAA received 524 referrals, of which 93 per cent. reflected specific performance concerns. In terms of advice, assessment and support, its approach is unique among health care systems.
	Sadly, as experience has shown, no system can be entirely error-free. However, evidence has also shown that when things go wrong, the causes can often be traced back to a systems error, rather than to the fault of an individual. As the case of Dr. Misra sadly demonstrates, some groupsparticularly junior doctorsmay, through inexperience or lack of training, make errors that other, more experienced colleagues would usually avoid. The consequences for the patients concerned can be severethat is clearly the most important issuebut the consequences for the doctor involved can also be serious, as we have seen. That highlights the critical importance of establishing robust systems for supervision and training, and the need for those who supervise students and junior doctors to take those responsibilities seriously, as the GMC's document Good Medical Practice clearly points out. An automatic decision to blame and punish staff makes it more likely that errors will be covered up, and that the right lessons will not be learned. The evidence shows that if an organisation's culture is open and fair and people are encouraged to speak up about patient safety incidents, patient safety is improved, as those organisations learn about what has gone wrong and are able to put things right in the future.
	In July 2001, the Government established the National Patient Safety Agency. The role of the NPSA is to improve the safety of NHS patients by promoting a culture of learning from, and reporting, patient safety incidents, and to manage the national reporting system that supports that function. Again, the NHS is leading the world by introducing the first truly national reporting system for adverse incidents. The NPSA has already begun to have an impact on patient safety, and it is working on a range of practical solutions to help make care safer for NHS patients.
	One such solution is the incident decision tree, which was launched recently as a web-based toolkit. It has been designed to assist managers in dealing openly and fairly with staff who have been involved in patient safety incidents. As I have said, a culture based on individual blame and punishment makes it more likely that problems will be driven underground and the root cause not tackled. However, there will clearly be times when individual clinical performance must be addressed and staff held accountable for their actions; this toolkit aims to help managers to pose the right questions in order to establish whether that might be the case. It provides a clear path through which to identify cases where deliberate harm, reckless behaviour or criminal act has been involved, to ensure that the right action is taken.
	If such behaviour is found to be the root cause of an incident, the regulatory body must then consider whether the individual concerned is fit to remain on the professional register. Patients and professionals alike need to be confident that the procedures for making those decisions are effective and fair. We are therefore in the process of modernising and strengthening professionally led regulation, particularly in respect of the GMC.The GMC exists to protect patients and the public interest by regulating and guiding the medical profession. In response to pressure from both the Government and the public, and in consultation with patients, the GMC has developed the most far-reaching reform package in its history. The foundations for change were laid when Parliament approved the Medical Act 1983 (Amendment) Order in December 2002.
	Patients and the public will benefit from simpler GMC proceedings and rules, speedier and more efficient processes and greater openness than before
	The motion having been made after Seven o'clock, and the debate having continued for half an hour, Mr. Deputy Speaker adjourned the House without Question put, pursuant to the Standing Order.
	Adjourned at twenty minutes to Eight o'clock.
	6 July 2004: In Col. 685, after Mr. Dismore's supplementary question, insert:

John Hutton: I will certainly look into the matter that my hon. Friend has raised.

Deferred Division
	  
	Civil Aviation

That the draft Stansted Airport Aircraft Movement Limit (Revocation) Order 2004, which was laid before this House on 8th June, be approved.
	The House divided: Ayes 248, Noes 138.

Question accordingly agreed to.